Pages Covered - 48-50

• The calculation of PED generally has two possible outcomes :

  • If the PED for a product is less than 1 (ignoring the minus sign), then demand price inelastic — that is, demand is relatively unresponsive to changes in price. This is because the percentage change in quantity demanded is smaller than the percentage change in the price

  
  

• If the PED for a product is greater than 1 (ignoring the minus sign), then demand is price elastic — that is, demand is relatively responsive to changes in price. This is because the percentage change in quantity demanded is larger than the percentage change in the price of the product

• Theoretical Possibilities Of PED

  • If the PED for a product is equal to 0, then demand is perfectly price inelastic — that is, a change in price has no impact on the quantity demanded. This suggests that there is absolutely no substitute for such a product

  • If the PED for a product is equal to infinity (∞) then demand is perfectly price elastic — that is, a change in price leads to zero quantity demanded. This suggests that customers switch to buying other substitute products if suppliers raise their price

  • If the PED for a product is equal to 1 (ignoring the minus sign), then demand has unitary price elasticity — that is, the percentage change in the quantity demanded is proportional to the change in the price

• Graphical Representation Of PED

• Perfectly Price Inelastic

• Perfectly Priced Elastic

• Unitary Price Elasticity