1. Price Elasticity of Demand

2. Definition Responsiveness of demand to a change in price.
Percentage change in demand
Percentage change in price
PED is always negative.

3. Calculating Percentage Change
Difference / Old Value
Example: Price 1 = 50, Price 2 = 40
Difference = ?
Old Value = ?
Percentage change = ?

4. Calculating Percentage Change
Difference / Old Value
Demand 1 = 70, Demand 2 = 180
Difference = ?
Old = ?
Percentage Change = ?

5. Types of Elasticity Elastic = Greater than (-)1
Change in demand is proportionally more than change in price.
To raise total revenue, lower price.
Examples: Bottled water, soft drinks.

6. Types of Elasticity Inelastic = Less than (-)1
Change in demand is proportionally smaller than the change in price.
To increase total revenue, raise price.
Examples: Cigarettes, petrol, alcohol.

7. Types of Elasticity Unitary Elastic = (-)1
Change in demand is equal to a change in price.
Changing price will change demand by the same amount.
If you change price, total revenue does not change.

8. Types of elasticity Perfectly Inelastic = 0
Change in price has no effect on the quantity demanded.
Raise price, raise total revenue.
Examples: Heroin Addiction

9. Types of Elasticity Perfectly Elastic = Infinity
A small change in price would cause an infinite change in demand.
This one has no real practical use.

10. Factors Affecting PED Availability of Substitutes Degree of Necessity
Luxury vs. Necessary Goods
Proportion of income spent on a good.

11. Factors Affecting PED Time Period Addictive or Habit Forming Goods
Brand Image Recognition.

12. Graphing Elastic Demand Curve Inelastic Demand Curve
Perfectly Inelastic Demand Curve

13. Curve and Elasticity