Study notes
# Price Elasticity of Demand

**Price elasticity of demand **measures the **responsiveness of demand** after __a change in price__

The formula for calculating the co-efficient of elasticity of demand is:

*Percentage change in quantity demanded divided by the percentage change in price*

How much does quantity demanded change when price changes? By a lot or by a little? Elasticity can help us understand this question

**Values for price elasticity of demand**

**If Ped = 0**demand is**perfectly inelastic**- demand does not change at all when the price changes – the demand curve will be vertical.**If Ped is between 0 and 1**(i.e. the % change in demand from A to B is smaller than the percentage change in price), then**demand is inelastic**.**If Ped = 1**(i.e. the % change in demand is exactly the same as the % change in price), then demand is**unit elastic**. A 15% rise in price would lead to a 15% contraction in demand leaving total spending the same at each price level.**If Ped > 1**, then demand responds more than proportionately to a change in price i.e.**demand is elastic**. For example if a 10% increase in the price of a good leads to a 30% drop in demand. The price elasticity of demand for this price change is –3

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