Page 94 - F1 - AB Integrated Workbook STUDENT 2018-19
P. 94
Chapter 7
Elasticity of demand
3.1 Price elasticity of demand (PED)
PED explains the responsiveness of demand to changes in price.
% change in demand
PED =
% change in price
Usually negative – assume this in questions unless otherwise indicated
Different methods of calculation:
– Arc method – non-average and average methods
– Point method
>1 is 'elastic'. A price drop should increase revenue. (%∆Q > %∆P)
<1 is 'inelastic'. A price increase should increase revenue. (%∆Q < %∆P)
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