Definition Of Ped
Economics notes
Definition Of Ped
➡️ PED stands for Price Elasticity of Demand, which is a measure of how sensitive the demand for a good or service is to changes in its price.
➡️ It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
➡️ A PED of 1 or greater indicates that the demand for the good or service is price elastic, meaning that a small change in price will result in a large change in quantity demanded.
What is PED and why is it important in economics?
PED stands for price elasticity of demand, which measures the responsiveness of quantity demanded to changes in price. It is important in economics because it helps businesses and policymakers understand how consumers will react to changes in price, and can inform decisions about pricing strategies, taxation, and regulation.
How is PED calculated and what do the results mean?
PED is calculated by dividing the percentage change in quantity demanded by the percentage change in price. If the result is greater than 1, demand is considered elastic, meaning that consumers are highly responsive to changes in price. If the result is less than 1, demand is considered inelastic, meaning that consumers are relatively insensitive to changes in price. If the result is exactly 1, demand is considered unit elastic, meaning that changes in price have an equal effect on quantity demanded.
What are some real-world examples of PED in action?
One example of PED in action is the market for gasoline. Because gasoline is a necessity for many consumers, demand is relatively inelastic, meaning that even significant price increases may not lead to a large decrease in quantity demanded. On the other hand, luxury goods like designer clothing or high-end electronics may have more elastic demand, as consumers are more likely to be price-sensitive and may choose to buy cheaper alternatives if prices rise too high.