PED

• The basic law of demand states that when the price goes up, quantity demanded will decrease.
• Price elasticity of demand measures the responsiveness of quantity demanded given a change in price.
• The equation for price elasticity of demand is PV equals the percentage change in quantity demanded over the percentage change in price.
• Price elasticity of demand is always negative because of the law of demand.
• If price goes up, positive quantity demand will fall and a negative number is obtained.
• If price goes down, negative quantity demand will increase and a negative number is obtained.
• A number greater than 1 indicates price elasticity, meaning for any given price change there is a greater proportionate change in quantity demanded.
• A number less than 1 indicates price inelasticity, meaning when the price changes quantity demand will change but proportionately less than the change in price.
• If there are more substitutes available, demand is more price inelastic.
• If demand is price elastic, reducing price will increase total revenue.
• If demand is price inelastic, increasing price will increase total revenue.
• If demand is price inelastic, reducing price will decrease total revenue.