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Price elasticity of demand


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PED - definition

Price elasticity of demand (PED) is the responsiveness of quantity demanded to a change in price. PED is calculated using the following formula:

% Change in quantity demanded
% Change in price

Hence, if the price of a smartphone increases from £400 to £440 (a 10% increase), and demand falls from 2m a year to 1.6m (a 20% fall), PED for smartphones would be:

- 20

Which gives a PED value of (-) 2. The negative sign shows that price and quantity demanded are inversely related, and the value (2) is greater than 1, which means the PED for smartphones is elastic.

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