Price Elasticity of Demand Revision

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Price elasticity of demand

Elasticity measures responsiveness to change. PED measures the extent to which a change in price leads to a change in quantity demanded.

Formula = % change in quantity demanded

                % change in price

This tells us the degree of elasticity. We then refer to good or a service as being price elastic or price inelastic.

Interpretation of numerical values of price elasticity of demand

  • Price elastic = a price change causes a proportionately bigger change in quantity demanded. This means that % change in Q is greater than the % change in price. Numerical value = Beyond -1.
  • Unit price elasticity = A price change causes the sameproportional change in quantity demanded. This means that % change in Q is the same as the % change in price. Numerical value = -1
  • Price inelastic - A price change causes a proportinately smaller change in quantity demanded. This means the % change in Q is smaller than the % change in price. Numerical value = Between 0 and -1.

REMEMBER PED IS ALWAYS NEGATIVE!

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