Price Elasticity of Demand

Price Elasticity of Demand (PED) measures how sensitive the quantity demanded of a good or service is to changes in its price. It is calculated as the percentage change in the quantity demanded divided by the percentage change in price.

  • Elastic Demand: If the quantity demanded changes significantly in response to a price change (i.e., PED > 1), the demand is considered elastic. Consumers are very responsive to price changes.
  • Inelastic Demand: If the quantity demanded changes little with a price change (i.e., PED < 1), the demand is inelastic. Consumers are less responsive to price changes.
  • Unitary Elastic Demand: If the percentage change in quantity demanded is exactly proportional to the percentage change in price (i.e., PED = 1), the demand is said to be unitary elastic.


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