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:
“Who makes ends meet, who’s taking the knock,
Government tariffs, wages, price of stock.
Smoke hangs under the light.”
—Philip Larkin (1922–1986)
“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 (1857–1930)
“The English masses are lovable: they are kind, decent, tolerant, practical and not stupid. The tragedy is that there are too many of them, and that they are aimless, having outgrown the servile functions for which they were encouraged to multiply. One day these huge crowds will have to seize power because there will be nothing else for them to do, and yet they neither demand power nor are ready to make use of it; they will learn only to be bored in a new way.”
—Cyril Connolly (1903–1974)