Price elasticity of demand (PED)
| English | Chinese | Pinyin |
|---|---|---|
| price elasticity of demand | 需求价格弹性 | xū qiú jià gé tán xìng |
| elastic | 富有弹性 | fù yǒu tán xìng |
| inelastic | 缺乏弹性 | quē fá tán xìng |
| luxuries | 奢侈品 | shē chǐ pǐn |
| substitutes | 替代品 | tì dài pǐn |
| necessities | 必需品 | bì xū pǐn |
| revenue | 收益 | shōu yì |
How much does price really matter?
- Cut the price of salt by half and you won't buy much more — you only need so much. Cut the price of one airline's seats and bookings soar.
- Price elasticity of demand 需求价格弹性 measures exactly how sensitive buyers are.
Price rises 10% and quantity demanded falls 30%. What is the size of PED?
PED = 30% / 10% = 3 (ignoring the sign) — elastic.
Defining PED
- PED = how much quantity demanded responds to a price change.
- $\text{PED} = \dfrac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}}$ — usually negative, so we read the size.
Worked example. Price rises 10% and quantity demanded falls 20%. $\text{PED} = \dfrac{-20\%}{+10\%} = -2$. Demand is elastic 富有弹性 (responsive).
Elasticity & total revenue
PED is the % change in quantity over the % change in price; whether it is above or below 1 decides how total revenue moves.
Demand & supply
Elasticity of demand is the steepness of the curve.
Demand is elastic when:
Elastic demand (PED > 1) responds strongly to price.
Necessities such as salt tend to have inelastic demand.
Few substitutes and a small budget share make necessities inelastic.
A good with many close substitutes tends to have ______ demand.
Substitutes let buyers switch easily, so demand is price-responsive.
Elastic vs inelastic 缺乏弹性
- Elastic (PED > 1): quantity changes a lot — luxuries 奢侈品, goods with close substitutes 替代品.
- Inelastic (PED < 1): quantity barely changes — necessities 必需品, addictive goods.
Steep = inelastic (quantity barely moves); shallow = elastic (quantity moves a lot).
If demand is inelastic, raising the price will:
With inelastic demand, quantity falls little, so revenue rises.
Why firms care: revenue 收益
- If demand is inelastic, raising price raises total revenue (buyers can't avoid it).
- If demand is elastic, raising price lowers total revenue (buyers desert the good).
Ignore the minus sign when judging size. PED is normally negative; a PED of $-2$ is "more elastic" than $-0.5$. Compare the magnitude (2 vs 0.5), not the sign.
Inelastic vs elastic demand
You've got it
- $\text{PED} = \dfrac{\%\Delta Q_d}{\%\Delta P}$ — its size measures responsiveness
- elastic (>1) = responsive (luxuries); inelastic (<1) = unresponsive (necessities)
- inelastic → raise price to raise revenue; elastic → the opposite