PED

• If PED = 1, it means that there is no change in quantity demanded when prices increase or decrease by 1%.
• The PED formula is % change in Qd / % change in Price
• Price elasticity of Demand is the responsiveness of demand to the changes in price
• Elastic Demand: When the demand is very responsive to the changes in price
• Inelastic Demand: when the demand is not responsive to the changes in price
• Perfectly inelastic demand: In case of perfectly inelastic demand, demand is not responsive to the changes in

  price. This is true of goods, which do not have any close

  substitutes. Eg: the market for oxygen and sunlight.
• Relative Inelistic demand : A large change in price brings about a less than proportionate change in quantity demand. PED values are always below 1.This happens in case of goods which have

  very few substitutes. Eg: petrol

  
• In case of perfectly elastic demand, demand is hyper responsive to change in price.

  This is true of goods which are perfect substitutes or identical in nature. This is a theoretical concept An increase in price will result in the demand falling to zero while a small fall in price will increase the demand to infinity. The closest eg. are agricultural crops. PED value for these goods is equal to infinity.
• Relatively Elastic Demand A small change in price brings about a more than proportionate change in quantity demand. PED values are always below 1.This happens in case of goods which have very few substitutes.
• Total cost (TC) = Fixed costs + Variable costs
• Fixed costs (FC): These are the expenses that remain constant regardless of how much output is produced. Examples include rent, insurance premiums, salaries, etc.
• Economic Profit = Total Revenue - Total Cost