Price Elasticity of Demand (PED)
1. Meaning
Price Elasticity of Demand (PED) measures how much the quantity demanded of a product changes when its price changes.
It shows how responsive customers are to price changes.
Law of Demand:
When price increases → quantity demanded decreases.
When price decreases → quantity demanded increases.
However, the size of the change in demand can be different for different products.
2. Examples
Products with many substitutes → demand changes a lot when price changes.
Examples: bananas, greeting cards, chocolate bars.
Products with few substitutes → demand does not change much when price changes.
Examples: petrol, toothpaste, haircuts.
3. Types of Demand
1. Price Inelastic Demand
Quantity demanded changes only a little when price changes.
Customers still buy the product even if the price increases.
Example: rice in many Asian countries.
2. Price Elastic Demand
Quantity demanded changes a lot when price changes.
Customers switch to other products if the price rises.
Example: if the price of Pepsi Cola rises, people may buy Coca-Cola instead.