Economics – The allocation of resources - Price elasticity of demand (PED) | e-Consult
The allocation of resources - Price elasticity of demand (PED) (1 questions)
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Answer:
PED = ((Q2 - Q1) / Q1) / ((P2 - P1) / P1)
Where:
- Q1 = Initial quantity sold = 500
- Q2 = New quantity sold = 350
- P1 = Initial price = £8
- P2 = New price = £10
PED = ((350 - 500) / 500) / ((10 - 8) / 8)
PED = (-150 / 500) / (2 / 8)
PED = (-0.3) / (0.25)
PED = -1.2
The Price Elasticity of Demand (PED) is -1.2. This suggests that demand is relatively elastic, as the percentage change in quantity demanded is greater than the percentage change in price.