Cambridge International as and a level Economics Ebook

45
Chapter 2: The price system and the microeconomy 

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Unitary elasticity
If the relative increase in price is exactly matched by the 
relative fall in quantity demanded, then the PED value 
will be (–)1. Demand will be said to have 
unit elasticity
over that particular price range. For example, if the price 
of a product goes from $1,000 to $1,050 and the quantity 
demanded decreases from 10,000 to 9,500, then the PED 
will equal (–)1 over this particular range of prices.
Unit elasticity: 
where the change in price is relatively 
the same as the change in quantity demanded giving a 
numerical value of 1.
KEY TERM
SELF-ASSESSMENT TASK 
2.5
1
Calculate the PEDs in each of the cases shown in 
Table 2.3
 and explain whether demand would be 
considered price elastic or price inelastic.
Original 
price
New 
price
Original 
quantity 
demanded
New 
quantity 
demanded
a
$100
$102
2,000 units 
per week
1,950 units 
per week
b
$55.50
$54.95
5,000 units 
per week
6,000 units 
per week
Table 2.3
2 
With the aid of a numerical example of your 
choice explain the meaning of these PED values:
a
PED 
=
1.5
b
PED 
=
0.6.
Factors aff ecting price elasticity of demand
Th
ere are three key factors that infl uence whether, over a 
particular price range, demand for a product is likely to be 
price elastic or inelastic. Th
ese are:
1
the range and attractiveness of substitutes