Question

Advise what Price Elasticity of Demand is. The more price-elastic demand is, the more responsive consumers are to a price change. TRUE or FALSE? Please Explain. The less price-elastic demand is, the less responsive consumers are to a price change. TRUE or FALSE? Please Explain.

Answer 1

Ans: The Price Elasticity of Demand (PED) is used in economics to evaluate the responsiveness or elasticity of the amount demanded of a product in relation to its price change.it is the ratio of percentage change in amount demanded to the percentage change in price .The demand for a good can be elastic or inelastic based on the quantity of change in the demand with respect to the change in price.

Example: PED follows the Law of demand as the cost lncreases the amount demanded decreases, as gas cost increases the amount of gas demanded decreases.

--- The more price-elastic demand is, the more responsive consumers are to a price change is TRUE,

When PED is greater than one,demand is elastic.This explains that consumers being sensitive to changes in cost :a one percentage increase in cost will lead to a drop in amount demanded of more than one percentage.

--- The less price-elastic demand is, the less responsive consumers are to a price change is TRUE,

When PED is less than one,demand is inelastic.This explains that consumers being insensitive to changes in cost :a one percentage increase in cost will lead to a drop in amount demanded of less than one percentage.