Page 1

Mind Map of Price Elasticity of Demand

PRICE ELASTICITY OF DEMAND

Page 2

Definition Application (Effect on Total Revenue or Total

Coefficient/Signs Expenditure)

Price
Responsiveness of to a Determinants PED 1 (Elastic)

Change in , Ceteris Paribus. Due to D PED 1 (Unitary Elasticity)

PED is always
. PED 1 (Inelastic)

We take the
Formula absolute number Quantity

only.
Percentage change in Total Revenue
Note: Total
Revenue for
Percentage change in Producer is
equivalent to
Price Total for
Consumers.

Not Required in Syllabus

TR
PED > 1 (Elastic)
Price Quantity
PED = 1 (Unitary Elasticity)

PED < 1 (Inelastic)

Quantity Quantity

Unit Elastic Demand Throughout

Not required in syllabus
Application (Use for Firms)
Price

Increase price if PED is (PED < 1), Magnitude

& vice versa.
D
Can pass on higher tax burden to consumers PED = 1 ⇒ Unitary Price Elasticity
as higher price if PED is (PED < 1). Change in quantity demanded is
Quantity change in price of the good.
Perfectly Elastic Demand
Throughout Application (Use for Govt)
PED > 1 ⇒ Demand is Price Elastic
Price D
Tax good that is price in demand Change in quantity demanded is
(PED < 1) to collect more tax revenue. than change in price of the good.
Tax good that is price in demand
(PED > 1) to discourage consumption. PED < 1 ⇒ Demand is Price Inelastic
Quantity Change in quantity demanded is
Perfectly Inelastic Demand
Throughout
than change in price of the good.