AN OVERVIEW OF PED!

SPARSH BOTHRA

THE BASICS
WHAT PED IS TYPES OF PED PED FORMULA

PED is short for the price There are 5 types of PED:

elasticity of demand. it is
a value and economic
concept that shows the
responsiveness of
quantitiy demanded to a
change in price of a good
or service.
1. Price Elastic
% Change in quantity
2. Price Inelastic
demand
3. Price Unitary Elastic
4. Price Perfectly Elastic
5. Price Perfectly % Change in price
Inelastic

INTERPRETATION - NEGATIVE VALUE

When calculating Price Elasticity Of Demand, the resulting value will always be a
negative number. This is because of the law of demand, which states that price and
quantity demanded have an inverse relationship, where as price increases, quantitiy
demanded decreases, and vice versa. Therefore, when we calculate PED, we exclude
the negative sign in the interpretation.

INTERPRETATION - 5 TYPES

There are five main interpretations of PED, which are further discussed in their
respective pages:
1. Price Elastic- |-1| < PED < | - |
2. Price Inelastic- 0 < PED < |-1|
3. Price Unitary Elastic- PED = |-1|
4. Price Perfectly Elastic- PED = | - |
5. Price Perfectly Inelastic- PED = 0
PRICE INELASTIC
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DEFINITION OVERVIEW OF CASE STUDY

Price Inelastic Demand is a type of
PED in which the change in quantity
demanded is proportionally lesser
than the change in the price of the
good or service. In other words, the
value of PED is lesser than |-1|
From January 2014 to April 2019, the
average cash price per insulin unit rose
54%, from $0.22 to $0.34. however the
quantity demanded rose by a minimal and
neglectable percentage, that was a result of
the increased number of diabetics.

DIAGRAM STAKEHOLDER
ANALYSIS
Consumers: Most consumers will
continue to purchase the product even
if prices increase as it is a necessity
and cannot be compromised on
significantly.

Governments: The government can use

this knowledge and with it, and infer
that insulin should be taxed as it is not
as responsive to changes in its price.
This will increase their tax revenue

Firms: Firms can use this knowledge to

know at what price they should be
selling at be producing a maximum revenue. With this type of elasticity, they are
encouraged to increase prices, as their revenue will increase. Firms may also be
incentivised to keep high prices and be discouraged from decreasing the price of the
insulin.
PRICE ELASTIC
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DEFINITION OVERVIEW OF CASE STUDY

Price Elastic Demand is a type of
PED in which the change in quantity
demanded is proportionally greater
than the change in the price of the
good or service. In other words, the
value of PED is greater than |-1|
Between 2012 to 2013, a study was
conducted on the price change of soft
drinks and the resulting changes on the
quantity demanded. Demand changes by
nearly 14% in response to price only
changing by 10%, making it elastic.

DIAGRAM STAKEHOLDER
ANALYSIS

Consumers: The number of consumers

decreased from Q1 to Q2 and price
decreased from 100% to 89.1% on a
relative scale. The number of
consumers decreased proportionally
more than the quantity demanded of it.

Governments: The government can use

this knowledge and with it, and infer
that soft drinks should not be taxed as
it is too heavily responsive to changes
in its price.

Firms: Firms can use this knowledge to

know at what price they should be selling at be producing a maximum revenue. With
this type of elasticity, they are discouraged to increase prices, as their revenue will
decrease. Firms may also consider decreasing the price of the soft drinks as they’ll
increase the quantity of consumers proportionall more.
PRICE UNITARY ELASTIC
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DEFINITION OVERVIEW OF CASE STUDY

Price Unitary Elastic is a type of
PED in which the change in quantity
demanded is proportional to the
change in the price of the good or
service. In other words, the value
of PED is equal to |-1|
A study by the National Coffee Association
found that a 10.1% increase in the price of
coffee (in US - 2022) lead to an opproximate
10.4% decrease in the quantity of coffee
demanded. This makes the demand for coffee
extremely close to 1, and can be considered
as unitary elastic, as the value comes very
close to 1.

DIAGRAM STAKEHOLDER ANALYSIS

Consumers: The number of consumers
decreased from Q1 to Q2 proportional to the
decrease in price from 100% to 89.1% on a
relative scale. The number of consumers
decreased as less people were willing and
able to purchase the product, and it wasn’t a
necessity (which would make it inelastic), or
a luxury good (which would make it more
elastic).

Governments: Governments can use this

information to decide not to impose taxes on
goods such as coffee. They may see it fit to
do so, if they’re weighing in factors such as
health, however, generally, for price inelastic goods, there is a lower Return on
Investement and larger damage to the economy by increasing tax on price unit elastic
goods and services.

Firms: Firms can use this knowledge to know at what price they should be selling at
be producing a maximum revenue. However, with price unitary elastic products, such
as coffee, this is irrelevent. Due to the price and demand being completely
proportional to one another (in theory), revenue at all prices and levels of demand,
will be the exact same.
PRICE PERFECTLY ELASTIC
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DEFINITION

Price Perfectly Elastic is a theoretical concept in which

quantity demanded can change infinitely in response to
little or rather, no change in price. It is where PED = | - |

DIAGRAM
PRICE PERFECTLY ELASTIC
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DEFINITION

Price Perfectly Elastic is a theoretical concept in which

quantity demanded can change infinitely in response to
little or rather, no change in price. It is where PED = | - |

DIAGRAM