Back to basics Part 3 - Price Elasticity of demand

What is Price elasticity of demand?

• The price elasticity of demand is the measurement of the responsiveness of demand to a change in price.
• The formula for price elasticity of demand (PED) is - 

• The value range of PED:
• PED = 1: Unit elastic, Change in price results in a proportionally equal change in quantity demanded.
• PED = 0: Perfectly inelastic, change in price results in no change in quantity demanded.
• PED = ∞: Perfectly elastic, a change in price results in a infinitely large change in demand.
• 0 < PED < 1: Inelastic demand: A change in price results in a proportionally small change in demand.
• PED > 1: Elastic demand: A change in price results in a proportionally larger change in demand.
• IMPORTANT NOTE: 
• You may have noticed that all values are negative, but assume that for the above PED equations, the value of PED is positive absolute value.
• The case where PED = 0 or ∞, are completely theoretical and cannot exist in the real world. 
• Graphs for the above cases: 

• Factors affecting PED - 
• The number and closeness of substitutes
• The necessity of the product and how widely the product is defined
• Time period considered