Price Elasticity of Demand (PED)
Measures how sensitive quantity demanded is to a change in price.
In economics, the price elasticity of demand (PED) is typically compared to 1, not 0.
- |PED| > 1 → elastic
- |PED| < 1 → inelastic
- |PED| = 1 → unit elastic
PED = 0 represents perfectly inelastic demand (quantity does not change with price), but it is not the standard benchmark for classifying elasticity. The key comparison is with 1.
Why does elasticity matter?
It helps firms decide what to charge and when, if ever, to have sales. It helps firms determine how many Substitutes are in the market. It is also used by the government to decide when and how much to tax.