Elasticity- price elasticity of demand

formula for calculating PED

%change in QD / %change in price

factors affecting PED

>substitutes >nature of the good- neccesitites vs luxuries >size of purchase (relative to consumer's budget) -

elastic

many substitutes or luxury

inelastic

necessity

if PED is more than 1..

price is elastic. the demand responds more than proportionately to a change in price. line will not be steep at all. a rise in market price will lead to a decrease in total revenue.

if PED is 0-1...

price is inelastic. a change in price will hardly effect the QD. the line will be a very steep gradient to the left. a rise in market price will lead to an increase in total revenue.

if PED = 0...

price is perfectly inelastic. a change in price won't effect the QD. The demand curve will be vertical. A rise in market price will lead to an increase in total revenue. These products have no subsitutes

price elasticity of demand measures...

the responsiveness of a change of price and the quantity demanded.