Price Elasticity of Demand

PED is a measure of how much the quantity demanded of a product

changes when there is a change in the price of the product.
PED = % change in quantity / % change in price
E 1 => the curve is said to be elastic.
E < 1 => the curve is said to be inelastic.
The possible range of values for PED usually goes [0 ; ]
Extremes are theoretical.
Real values are in between.

A change in P will have no effect on Q demanded.

The demand is said to be perfectly inelastic, unresponsive to price
changes.

In this case, demand is said to be perfectly elastic. At any P the demand
curve goes on forever and so the Q is .

0 < PED < 1
Change in the P of the product leads to a proportionally smaller change in
the Q demanded of it.
If the price rises, the Q will not fall by much and so the total revenue
gained by the firm increase.

1 < PED <
A change in P of the product leads to a greater than proportionate change
in Q demanded of it.
If P rises, Q will fall even more, so the total revenue gained by the firm
decrease.
Conclusion: not advisable to increase P, if there is an elastic product.
PED = 1
A change in P leads to proportionate opposite change in Q demanded of
it.
If P rises, then Q decreases by the same percentage and the total revenue
gained by the firm will not change.
It is known as a rectangular hyperbola. It is drawn in such a way that P
times Q at any point is constant.

The number and closeness of substitutes
The most important determinant. The more substitutes there are, the more
elastic will be the demand for it. Example: butter
The necessity of the product and how widely the product is defined
Food is a necessity. Thus the demand is very inelastic, but as narrowing
down the subject of study (food->meat->chicken->lamb->beef) the
demand becomes more elastic as people can easily change preference, if P
changes.
The time period considered:
As P changes, it usually takes time for consumers to change their buying
habits. Thus, PED is more inelastic in a short period then becomes more
and more elastic, the longer the period of measurement.