PED is calculated by dividing the % change in quantity demanded by the change in the product’s price.
% fall in demand = 2%
% increase in price = 4%
PED, therefore, will be:
2%/4% = 0.5
The demand is therefore inelastic in that the PED is between zero and one
It is used to determine and understand supply and demand changes of goods when there is a change in prices.
Reference
Jawad, M., Lee, J. T., Glantz, S., & Millett, C. (2018). Price elasticity of demand of non-cigarette tobacco products: a systematic review and meta-analysis. Tobacco Control, 27(6), 689-695.
Lowest; fewest
The substitutability of a good is a major determinant of the price elasticity of demand for the product. Goods with more close substitutes have higher elasticity, while those with lower demand elasticity have fewer substitutes. Substitute products are those which fulfill consumer satisfaction in the same way as the other goods.
The more the number of substitutes available, the buyers can easily switch from one product to the other even if there are changes in prices resulting in a higher elasticity of demand. When there are few or no substitute goods, consumers find it difficult to switch to other goods or services while maintaining satisfaction; therefore, they are inelastic. Elasticity increases when the necessity of the good decreases and vice versa.
Reference
Jawad, M., Lee, J. T., Glantz, S., & Millett, C. (2018). Price elasticity of demand of non-cigarette tobacco products: a systematic review and meta-analysis. Tobacco Control, 27(6), 689-695.
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