Exploring Price Elasticity of Demand (PED) and Price

Elasticity of Supply (PES)

Task1:
Price elasticity is a crucial concept in economics, measuring the responsiveness of
quantity demanded or supplied of a good or service to changes in its price. Understanding
PED and PES helps businesses and policymakers make informed decisions about pricing,
production, and resource allocation.
-Interpretation of PED:
Price Elasticity of Demand: % change in Quantity Demanded / % change in Price
PED > 1: Elastic demand: A small change in price leads to a proportionally larger change in
quantity demanded. Consumers are highly responsive to price changes, often switching to
substitutes or reducing consumption altogether. Examples: Luxury goods, gasoline.
PED = 1: Unit-elastic demand: A percentage change in price leads to an equal
percentage change in quantity demanded. Consumers adjust their consumption proportionally
to price changes. Examples: Coffee, restaurant meals.
PED < 1: Inelastic demand: A change in price leads to a smaller proportional change
in quantity demanded. Consumers are less responsive to price changes, often due to lack of
close substitutes or essential needs. Examples: Insulin, salt, basic food staples.
PED = 0: Perfectly inelastic demand: Quantity demanded remains constant regardless
of price changes. Examples: Life-saving drugs, addictive substances.
-Interpretation of PES:
PES > 1: Elastic supply: A small change in price leads to a proportionally larger
change in quantity supplied. Producers readily adjust production levels in response to price
changes. Examples: Agricultural products, manufactured goods.
PES = 1: Unit-elastic supply: A percentage change in price leads to an equal
percentage change in quantity supplied. Producers adjust production proportionally to price
changes. Examples: Utilities, transportation services.
 PES < 1: Inelastic supply: A change in price leads to a smaller proportional change in
quantity supplied. Producers are less responsive to price changes, often due to time lags in
production or fixed costs. Examples: Rare minerals, highly skilled labour.
PES = 0: Perfectly inelastic supply: Quantity supplied remains constant regardless of
price changes. Examples: Natural resources like land, fixed-capacity production facilities.