Economics: Price Elasticities
1a)
Price elasticity of demand (PED) measures the degree of responsiveness of the quantity demanded of a good to a given change in price of the good itself, ceteris paribus. It is found by taking the percentage change in quantity demanded of good X divided by the percentage change in the price of good X.
The numerical value of the price elasticity of demand is always negative due to the inverse relationship between quantity demanded and price as stated in the law of demand. When we interpret the value of the price elasticity of demand, we just quote the absolute value. The absolute value of PED range from zero to infinity.
When PED is greater than one, the demand for the good is said to be price elastic. It means that a proportionate change in price causes a more than proportionate change in quantity demanded, ceteris paribus.
When PED is less than one, demand for the good is said to be price inelastic. This means that a proportionate change in price of the good causes......
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