Price Elasticity of Demand

Statement

Price elasticity of demand (PED) measures the degree of responsiveness of quantity demanded of a good to a change in its own price, ceteris paribus.

Notes

PED is calculated as

$PED = \frac{\%\,\text{change in quantity demanded}}{\%\,\text{change in own price}}$

Because price and quantity demanded move inversely (the law of demand), PED is always negative, so its sign is conventionally ignored and only the magnitude reported. A good is price elastic when $1 < |PED| < \infty$ (quantity demanded changes more than proportionately to price) and price inelastic when $0 < |PED| < 1$ (less than proportionately). The change in quantity demanded this measures is a movement along the curve, not a shift of demand. How PED governs the effect of a supply shift on price, quantity and total revenue is set out in applying PED.