Summary Unit 2b - Business Economics price elasticity of demand

Price elasticity of demand (PED)

v Price elasticity of demand is a measure of how
responsive demand is to a change in price
v There is an inverse relationship between price and
demand
v As price goes up demand goes down
v As price goes down demand goes up
v But the question is by how much? Is the change in
demand more than proportional to the change in
demand or less than proportional?
v PED is price inelastic as the fall in demand is less
than the fall in price.
v PED is price elastic as the fall in demand is greater
than the fall in price.


¥ Price elastic demand means that a change in price
will lead to a more than proportional change in
demand i.e. demand is sensitive to price changes
¥ Price inelastic demand means that a change in
price will lead to a less than proportional change
in demand i.e. demand is not so sensitive to
changes in price

PED can be calculated using the formula:
% change∈quantity demanded
% change ∈ price
= PED


Step 1 Change in Demand x 100
Original Demand

Step 2 Change in Price x 100
Original Price

Step 3 % change in Qd
% change in P