AP MicroeconomicsElasticity
Price Elasticity of Demand
Price elasticity of demand measures how responsive quantity demanded is to a change in the good's price.
It is the percentage change in quantity demanded divided by the percentage change in price. Demand is elastic when the absolute value is greater than 1 and inelastic when it is less than 1. Goods with many substitutes, that take a large share of income, or judged over a longer time horizon tend to be more elastic.
Formula / Example
PED = %Δ quantity demanded ÷ %Δ price. Midpoint method: %Δ = (Q₂ − Q₁) ÷ ((Q₁ + Q₂)/2). |PED| > 1 elastic, < 1 inelastic, = 1 unit elastic.
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