Price Elasticity of Demand (PED)
PED is a measure of the sensitivity of the quantity variable, Q, to changes in the price variable, P. Elasticity answers the question of how much the quantity will change in percentage terms for a 1% change in the price, and is thus important in determining how revenue will change.
The elasticity of demand indicates how sensitive the demand for a good is to a price change. If the PED is between zero and 1 demand is said to be inelastic, if PED equals 1, the demand is unitary elastic and if the PED is greater than 1 demand is elastic. A low coefficient implies that changes in price have little influence on demand. A high elasticity indicates that consumers will respond to a price rise by buying a lot less of the good and that consumers will respond to a price cut by buying a lot more.
Read more about this topic: Demand Curve
Famous quotes containing the words price, elasticity and/or demand:
“A bargain is in its very essence a hostile transaction ... do not all men try to abate the price of all they buy? I contend that a bargain even between brethren is a declaration of war.”
—George Gordon Noel Byron (17881824)
“One of the reforms to be carried out during the incoming administration is a change in our monetary and banking laws, so as to secure greater elasticity in the forms of currency available for trade and to prevent the limitations of law from operating to increase the embarrassment of a financial panic.”
—William Howard Taft (18571930)
“We are well advised to keep on nodding terms with the people we used to be, whether we find them attractive company or not. Otherwise they turn up unannounced and surprise us, come hammering on the minds door at 4am of a bad night and demand to know who deserted them, who betrayed them, who is going to make amends. We forget all too soon the things we thought we could never forget.”
—Joan Didion (b. 1934)