PRICE ELASTICITY OF DEMAND

Hanin samer
 PRICE ELASTICITY OF DEMAND (PED)

Price elasticity is used by economists to understand how supply or demand

changes given changes in price to understand the workings of the real economy it
is a numerical measure of responsiveness of the quantity demanded to a change in
price of a product. If demand is elastic , then small change in price will result in a
relatively larger change in quantity demanded. On the other hand, if there is a
large change in price and a far lesser change in quantity demanded, then demand
is price inelastic. A numerical example helps to clarify this. A way of expressing
PED in a numerical form is:
Price Elasticity of Demand = % Change in Quantity Demanded ÷ % Change in Price
 FACTORS THAT INFLUENCE (PED)

There are three key functions that influence, whether, over a particular price
range, demand for a product is likely to be price elastic or inelastic. These are:
-The range and attractiveness of substitutes
-The relative expense of the product
-Time