Cambridge International as and a level Economics Ebook

Some special PED values
It is important to realise that mathematically PED 
values can range from 0 to infi nity. Th
ese values need 
explanation. Consider, for example the demand curve 
shown in 
Figure 2.4
. Irrespective of the price charged, 
consumers are willing and able to buy the same amount – 
in this case demand would be said to be 
perfectly 
inelastic
. Look at the PED calculation for an increase in 
price from $10 to $11.
PED
% change in quantity demanded
% change in price
=
=
=
0%
%
+
10
0
When the PED 
=
0, demand is perfectly inelastic; it is 
completely unresponsive to price changes.
Consider the demand curve in 
Figure 2.5
. At a price of 
$10 per unit consumers are not prepared to buy any of this 
product; however, if price falls to $9, they will buy all that 
is available. Th
e relative change in quantity demanded here 
is infi nite, since the original demand was zero. So:
PED
% change in quantity demanded
% change in price
=
=
= 
∞
−
− ∞
10%
( )
In this case, demand is 
perfectly elastic
.
0
Price (US$)
Quantity demanded
100
D
12
11
10
Figure 2.4 
A perfectly inelastic demand curve
Perfectly inelastic: 
where a change in price has no eff ect 
on the quantity demanded.
Perfectly elastic: 
where all that is produced is sold at a 
given price.
KEY TERMS
105
100
900
990
D
A
0
D
B
Price (US$)
1000
Quantity demanded
Figure 2.3 
Price inelastic and price elastic demand curves