ECON102 Chapter Notes - Chapter 1.2: Demand Curve, Luxury Goods, Pencil Case
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Price elasticity of demand (ped): the measure of the responsiveness of the quantity demanded of a good to a change in its price, along a demand curve. Mathematically the value is negative, as the demand curve slopes downwards, but we treat it as a positive value. This means that a small percentage change in price causes a large percentage change in quantity demanded. This is usual for luxury goods with many substitutes, such as ferraris, gucci bags and superyachts. This means that a large percentage change in price causes a small percentage change in quantity demanded. This is usual for necessity goods with few substitutes, like bread, milk and electricity. This means that a percentage change in price causes a proportionate percentage change in quantity demanded. This means that an infinitesimally small percentage change in price causes infinitely large percentage change in quantity demanded.