Price elasticity of demand - PED Flashcards
PED
The responsiveness of a change in demand to a change in price
PED impact on total revenue
If a good has inelastic demand, a firm can raise its price, and quantity sold will not fall significantly. Increasing total revenue.
If a good has elastic demand and the firm raises its price, quantity sold will fall. This will reduce total revenue.
Formula
PED= % change in quantity demanded / % change in price
Price elastic good
Very responsive to a change in price = a change in price leads to an even bigger change in demand - PED > 1
Price inelastic good
Relatively unresponsive to a change in price - PED < 1
Unitary elastic good
A change in demand is equal to a change in price - PED = 1
Perfectly elastic good
Demand does not change when the price changes - PED = 0
Perfectly inelastic good
Demand falls to zero when price changes - PED = infinity