Formula:%ch in quantity demanded/%ch in price
Notes:PED>1:ELASTIC;PED<1:inelastic:ped=1>
When the PED is elastic,if the producers drop the price,they will gain more,when they increase price,they will get a loss.
But when PED is inelastic,producers increase price,they gain more revenue,they loss profit when they decrease the price.
PED is one of the most efficient way to measure economy and market,and there are several important factors :
1.substitute:
Substitute,we can simply treat it as competitors,If a lots of producers produce the same kind o produce.Its quantity demand is elastic,the more substitutes,the bigger PED number are.Therefore,substitute is a main factor which can affect PED.
2. income level:
If there is an increasing in consumer income,the demand may increase,because people have more income than before,it may encourage people buy goods and services.But the problem is people may buy demerit goods,such as cigarette,which has negative efforts on the third parties,cause market failure,and in order to get more profit,producers may over produce demerit goods,make market failure even worse.At last,government may increase taxation to correct it closing to MSC
3.Time:
If there is a new product selling today,people may buy it,as it`s fresh goods,and want to try it.Demand may increase sharply,but....after a period of time,the demand for the product may decrease and keep remain..
4.Taste:
As I said in 3,time is a factor which might affect PED,taste is same as time,after a new product is introduced into market,people are eager to buy it,but different types of people have different tastes...after a period of time, demand for the product may decrease a lot,because of the different tastes.
5.Economics problems:
we know UK economy has deeply recession.People don`t want to expend,the demand for specific(people want but don`t need to buy)goods may decrease, because people may not need it for their normal life.So they don`t have to buy them when there is an recession.
