What is price elasticity of demand?
Price elasticity of demand is the responsiveness of demand to a change in price.
The way to remember this is like a house in an earthquake.
The effect is that the top of the house falls down.
The cause is the earthquake underneath.
Effect Change in demand
Cause Change in price
If the PED = 1
demand is UNIT ELASTIC
If the PED < 1
demand is PRICE INELASTIC
(this means that the demand of the product does not change with price, for example bread)
If the PED > 1
demand is PRICE ELASTIC
(This means that demand does chnage with price, for example a flat screen T.V)