Price Elasticity of Demand (PED)
Price Elasticity of Demand (PED)
Meaning: Price elasticity of demand shows how much the demand for a product changes when its price changes. It helps us understand how sensitive customers are to price changes.
For example:
If the price of ice cream goes up and people stop buying it quickly, the demand is elastic.
But if the price of salt goes up and people still buy it, the demand is inelastic.
Formula:
Types of PED:
Elastic demand (>1): A small change in price causes a big change in demand. Example: Branded clothes, chocolates.
Inelastic demand (<1): Even if the price changes, people still buy about the same amount. Example: Salt, medicines.
Unitary elastic (=1): The percentage change in price and demand is equal.
Perfectly elastic (∞): If price increases even a little, no one buys.
Perfectly inelastic (0): Demand never changes even if price goes up or down.
Why it’s important:
Helps businesses set the right price.
Helps the government understand how taxes will affect people.
Shows which goods people really need and which ones are luxuries.