Definition:

Price Elasticity of Demand measures how much the quantity demanded of a product changes when its price changes.

Formula

Types of PED

1. Elastic Demand (PED > 1)

   • Demand changes more than the price.

   • Example: Soft drinks, chocolates.

2. Inelastic Demand (PED < 1)

   • Demand changes less than the price.

   • Example: Salt, medicines.

3. Unit Elastic Demand (PED = 1)

   • Demand changes by the same percentage as price.

Factors Affecting PED

• Availability of substitutes

• Whether the good is a necessity or luxury

• Time available to consumers

• Proportion of income spent on the good