Kognity Ch. 1.2.1 - Price elasticity of demand

Question 1

What is elasticity?

Answer 1

Elasticity is a measure of the responsiveness of the quantity demanded or supplied of a good or service, to changes in any of the factors that determines it.

Question 2

What is the price elasticity of demand?

Answer 2

Price elasticity of demand (PED) is a measure of the responsiveness of the quantity demanded of a good or service to changes in its own price.
Due to the law of demand, when the price of a good increases people tend to consume less of it, ceteris paribus. The extent to which the quantity demanded of such good will fall depends on how ‘elastic’ its demand is with respect to its price.

Question 3

What is the formula for PED?

Answer 3

PED = %ΔQd / %ΔP

Question 4

When PED > 1, what is the demand called and what does it mean?

Answer 4

When PED > 1, there is price elastic demand. This means that a change in price leads to a proportionately greater change in Qd.