Analysis of the PED Flashcards
If the figure is greater than -1 then
the demand is relatively elastic/ fairly elastic
If the figure is less than -1
demand is relatively inelastic
1<PED<∞
Fairly elastic/relative price elastic means that a %∆ in price for a g/s results in a more than proportionate %∆ in Qd
PED=∞
Means that a %∆ in the price for a good will lead to a infinite change in q.d.
0<PED<1
This means that a %∆ in price for a good will result in a less that proportionate %∆ in q.d
PED=0
This means that a %∆ in the price for a good leads to no change in q.d eg, salt, gas
PED=1
A %∆ in the price of a good would lead to the same %∆ in q.d
Classify and interpret
PED= -5
This good is relatively priced elastic in demand so a %∆ in price for a g/s results in a more than proportionate %∆ in Q.d.
A PED value of -5 would mean that a 10% increase in the price of a good would lead to a 50% (5x10) decrease.
Conversely, a 10% decrease in the price of a good would lead to a 50% increase in the quantity of the good demanded.
PED = -0.2
This good is relatively priced inelastic in demand (fairly inelastic). This means that a %∆ in the price of a good would result in a less than proportionate %∆ in the q.d. A PED of -0.2 would mean that a 10% increase in the price of a good would result in a 2% (0.2 x 10) decrease in the q.d while a 10% decrease in price would lead to a 2% increase in q.d. For example: necessity goods
PED = -1
The good is unitary priced elastic, this means that a %∆ in the price of a good would lead to the same %∆ in the q.d, A 10% increase in the price of a g/s would lead to a 10% decrease in the q.d and conversely, a 10% decrease in the price of a g/s would lead to a 10% increase of the q.d.
PED=0
The good is perfectly priced inelastic. This means that a %∆ in the price for a good leads to no change n q.d. If there is a 10% increase/decrease in the price of gas, there would be a constant no %∆ in the q.d.
