Price elasticity of demand (P.E.D)

• Price elastricity of demand


  It refers to the rate at which qty dd of a good changes due to changes in the price.
• Equation

  = ΔQ OP

  --- X ----

  OQ ΔP
• P.E.D will always be negative.

  This is because of the inverse relationship between price and qty dd.
• Interpretation of P.E.D

  e.g -0.67

  • The negative meand the inverse relationship between price and qty dd.
  • 0.67 means 1% change in price will lead to 0.67% change in qty dd.