1) Give an example of a product that is elastic and explain why. 2) Give an example of a product that is inelastic and explain why.

ANS

PED is the measure that shows how the quantity demanded (QD) of a good change when the level of price of the commodity changes. It is given by the following formula:

$Price Elasticity of Demand \left(PED\right)=\frac{\% change in quantity demanded}{\% change in price}$

• If PED = 1 then the % change in QD is exactly equal to the % change in price. We say that the demand is unit elastic.
• If PED > 1 then the % change in QD is more than the % change in price. We say that the demand is elastic.
• If PED < 1 then the % change in QD is less than the % change in price. We say that the demand is inelastic.