What factors determine the price elasticity of demand? Explain your answer with examples. Jacky Chong, Block 1 Price elasticity of demand (PED) is a measure of how much the quantity demanded of a product changes when there is a change in the price of the product. It is usually calculated by using the following equation: PED = (% change in quantity demanded of the product) / (% change in price of the product). The range of values of PED usually goes from zero to negative infinity (therefore the negative sign is always ignored). If the PED is zero, then a change in the price of a product will have no effect on the quantity demanded at all. That is called the perfectly inelastic demand. Oppositely, A PED value of negative infinity means any change in the price of a product will have infinitely large effect on the quantity demanded. That’s called the perfectly elastic demand. Inelastic demand means the value of PED is less than one and greater than zero. In this case, a change the price of a product will have relatively small effect on the quantity demanded at all. Elastic demand means the value of PED is less than zero and greater than negative in infinity. In
This is the end of the preview.
access the rest of the document.