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LESSON 1.2.3 PRICE, INCOME AND CROSS ELASTICITIES OF DEMAND ECONOMICSA LEVELS | 2023 - 2024 |
PRICE ELASTICITY OF DEMAND ( PED ) ● Perfectly elastic demand: PED = infinity
● Elasticity:
○ Elasticity of how quantity demanded of goods or ○ Any increase in price means that demand will fall to
services response to a change in price zero
● Price elasticity of demand ( PED ): ○ Consumers are willing to buy all they can obtain at P,
○ A measure of how the quantity demanded of a good but none at a higher price ( above P )
responds to a change in its price
○ You can think PED as the way that consumers react (
how much of a good they demand ) as the price
changes
● PED can be
% change in quantity calculated
using the demanded following
formula: % change in price
○ PED =
Inelastic
New - Old
○ Percentage change = x 100% ● Inelastic ( relatively inelastic ) demand: 0 < PED < 1
Old
○ A percentage change in price will cause a smaller
percentage change in quantity demanded
○ The smaller the value of PED, the more inelastic
○ Price elasticity of demand is usually negative demand for the good
because demand falls as price increases for most
goods
Elastic
● Elastic ( relatively elastic ) demand: PED > 1
○ A percentage change in price will cause a larger
percentage change in quantity demanded
○ The higher value of PED, the more elastic demand is
for the good
● Perfectly inelastic demand: PED = 0
○ Any change in price will have no effect on the
quantity demanded
○ At any price ( P1 or P2 ), the quantity demanded will
be the same
COURSE CODE: COURSE TITLE LESSON # 1
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