PED

• PED definition

  The responsiveness of quantity demanded to change in price.
• Formula for PED

  PED = %change in QD / %change in price.
• Determinants of PED

  The availability of substitutes, The necessity of the product, Time period, width of market definition, proportion of income spend on good.
• PED = 0 (perfectly inelastic)

  The QD is completely unresponsive to a change in P, (QD won‘t change if price increases)

  
• PED = 0 -> 1 (relatively inelastic)

  • The %∆ in QD is less than proportional to the %∆ in P (e.g. addictive products)

  
• PED = 1 (unitary elastic)

  • The %∆ in QD is less than proportional to the %∆ in P (e.g. addictive products)

  
• 1 -> ♾️ (relatively elastic)

  • The %∆ in QD is more than proportional to the %∆ in P (e.g. luxury products)

  
• ♾️ (perfectly elastic)

  • The %∆ in QD will fall to zero with any %∆ in P