• The law of demand states that when there is an increase in price, there will be a fall in quantity demanded

  • Economists are interested by how much the quantity demanded will fall

• Price elasticity of demand reveals how responsive the change in quantity demanded is to a change in price

  • The responsiveness is different for different types of products

    
    

Calculation of PED

• PED can be calculated using the following formula

  
  

• To calculate a % change, use the following formula

1. A firm raises the price of its products from £10 to £15. Its sales fall from 100 to 40 units per day. Calculate the PED of its products

Step 1:  Calculate the % change in QD

Step 2: Calculate the % change in P

Step 3: Insert the above values in the PED formula