Calculation Of Ped
Economics notes
Calculation Of Ped
➡️ Price Elasticity of Demand (PED) is a measure of the responsiveness of demand for a good or service to a change in its price. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
➡️ PED can be used to determine how sensitive consumers are to changes in price, and can help businesses to decide how to set prices for their products. A PED of 1 indicates that a 1% change in price will lead to a 1% change in quantity demanded.
➡️ PED can also be used to determine the optimal pricing strategy for a business. If the PED is elastic, then a business should lower prices to increase demand, while if the PED is inelastic, then a business should raise prices to increase profits.
What is PED and how is it calculated?
PED stands for Price Elasticity of Demand, which measures the responsiveness of quantity demanded to changes in price. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
What does a high PED value indicate?
A high PED value indicates that a small change in price will result in a large change in quantity demanded. This means that the good or service is highly elastic, and consumers are very sensitive to changes in price.
How can PED be used by businesses and policymakers?
Businesses can use PED to determine the optimal price for their products, as well as to forecast changes in demand based on price changes. Policymakers can use PED to assess the impact of taxes or subsidies on consumer behavior, and to design policies that promote economic efficiency and consumer welfare.