Unit 1 : Price Elasticity of Demand

Price Elasticity of Demand : a measure how consumer react to a change in price .

Elastic demand - demand that is very sensitive to a price

  • There are substitutes ; they are not a necessity 
  • E > 1 
  • ex : soda , steak , fur coat 
Inelastic demand - demand that is not very sensitive to a change in price ( there are few to no substitutes; it is a necessity)

  • E < 1 
  • ex .insulin , milk , gas 
Unitary elastic -  E = 1

 PED ( Calculations )
Step 1 : Quantity
           ( new- old / old )

Step 2 : Price
           (new- old / old )

Step 3: PED = % Δ in quantity/%Δ in price 

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