Drawing and interpretation of demand curve diagrams to show different PED

📈 Price Elasticity of Demand (PED)

What is PED?

Price Elasticity of Demand measures how much the quantity demanded of a good changes when its price changes.

Formula: PED = $\frac{\% \Delta Q_d}{\% \Delta P}$

Interpretation:

  • Elastic demand – PED > 1 (quantity changes a lot)
  • Unit‑elastic demand – PED = 1 (quantity changes proportionally)
  • Inelastic demand – PED < 1 (quantity changes little)

Drawing Demand Curves

In a demand diagram:

  • Vertical axis = Price (P)
  • Horizontal axis = Quantity (Q)
  • Demand curves slope downwards (negative relationship)

Different slopes show different elasticities:

  • Flatter curve – Elastic demand (price changes a lot, quantity changes a lot)
  • Steeper curve – Inelastic demand (price changes a lot, quantity changes little)
  • Intermediate slope – Unit‑elastic demand

Examples of Goods

  • Luxury cars – elastic (people can postpone buying)
  • Salt – inelastic (tiny price change, quantity hardly changes)
  • Smartphones – unit‑elastic (moderate price sensitivity)

Diagrammatic Representation

Elastic Demand (PED > 1)

Q P Elastic

Unit‑Elastic Demand (PED = 1)

Q P Unit‑Elastic

Inelastic Demand (PED < 1)

Q P Inelastic

Analogy: Elastic vs. Inelastic

Think of a rubber band:

  • Stretch it a little – it returns quickly (elastic demand)
  • Stretch it a lot – it resists and stays stretched (inelastic demand)
  • Stretch it just enough to keep it the same length – unit‑elastic demand

Exam Tips Box

Key Points to Remember:

  • Use the formula PED = $\frac{\% \Delta Q_d}{\% \Delta P}$
  • Interpret PED values: >1 = elastic, =1 = unit‑elastic, <1 = inelastic
  • Draw demand curves with correct slopes: flatter = elastic, steeper = inelastic
  • Label axes clearly: Price (P) on the vertical, Quantity (Q) on the horizontal
  • When asked to explain a diagram, mention how the slope relates to elasticity

Good luck! 🚀

Summary Table

Elasticity Type PED Value Curve Slope Example Good
Elastic > 1 Flatter Luxury cars, concert tickets
Unit‑elastic = 1 Moderate slope Smartphones, coffee
Inelastic < 1 Steeper Salt, basic utilities

Revision

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