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:
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.