Price Elasticity of Demand

PED

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What is price elasticity of demand?

Price elasticity of demand is the responsiveness of demand to a change in price.

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The formula

The way to remember this is like a house in an earthquake.

The effect is that the top of the house falls down.

(http://t0.gstatic.com/images?q=tbn:ANd9GcSRhgHvu8208EJ74--oMfpT6zNQnF8J6g7fhdhPaWrnTmkIheJW)

The cause is the earthquake underneath.

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    Effect                                                 Change in demand

__________                               ____________________

    Cause                                                    Change in price

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If the PED  = 1

demand is UNIT ELASTIC

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If the PED  < 1

demand is PRICE INELASTIC

(this means that the demand of the product does not change with price, for example bread)

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If the PED  > 1

demand is PRICE ELASTIC

 (This means that demand does chnage with price, for example a flat screen T.V)

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