Karthikeyan

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:

1. Elastic demand (>1): A small change in price causes a big change in demand. Example: Branded clothes, chocolates.

2. Inelastic demand (<1): Even if the price changes, people still buy about the same amount. Example: Salt, medicines.

3. Unitary elastic (=1): The percentage change in price and demand is equal.

4. Perfectly elastic (∞): If price increases even a little, no one buys.

5. 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.