Macroeconomics Unit I: Price Elasticity of Demand

Price Elasticity of Demand

• Tells how drastically buyers will cut back or increase their demand for a good when the price rises or falls. 

Types of Demands

        Elastic Demand

• Demand will change greatly if there is a change in price.
• Wants
• e > 1

        Inelastic Demand

• Demand for a product will not change, regardless of price.
• Needs
• e < 1

        Unit Elastic Demand

• e = 1

How to solve a PED Problem

• Follow steps 1-3.
• DO NOT SKIP A STEP OR MOVE AHEAD WITHOUT COMPLETING A STEP

Step One: 

• % change in quantity
• (new quantity-old quantity)/ old quantity

Step Two:

• % change in price 
• (new price-old price)/ old price

Step Three:

•