Define elastic and inelastic demand

Expert Solution

Price elasticity of demand is a measure of the responsiveness of the demand for a good to changes in its price.

Ped= %age change in Quantity Demanded / %age change in Price

When Percentage change in Quantity demanded for good or service is less than Percentage change in Price, the demand is said to be inelastic. Demand for inelastic goods doesn’t change much with change in price. The price elasticity of inelastic good is always less than 1. The good which has PED of 0.25 means that the good is necessity good. These goods less sensitive to change in its price. For example power, healthcare and food.

Whereas, When Percentage change in Quantity demanded for good is greater than Percentage change in Price, the demand for good is said to be elastic. The Price elasticity of elastic goods is always greater than 1. This means that price is sensitive for such goods. The good which has PED of 2.8 means(greater than 1) that it is luxury good. These goods are more sensitive to change in its price. For example SUVs, jewellery etc

Rahul Sunny answered 1 year ago

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