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The law of demand and the price elasticity of demand are two important yet distinct concepts in microeconomics that describe the relationship between the price of a good and the quantity demanded by consumers. While the law of demand provides a general direction of change in quantity demanded with respect to price, price elasticity of demand measures the magnitude of this change. Understanding both concepts is crucial in analyzing consumer behavior and making informed decisions in a market economy. The law of demand states that, other things being equal, there is an inverse relationship between the price of a good and the quantity demanded. That is, as the price of a good rises, the quantity demanded falls, and as the price falls, the quantity demanded increases. This relationship is based on the substitution effect and the income effect. The substitution effect implies that when the price of a good rises, consumers may switch to cheaper substitutes, thereby reducing the quantity demanded of the more expensive good. The income effect suggests that a higher price reduces the purchasing power of consumers, making them feel poorer and consequently decreasing their demand. However, the law of demand does not quantify the extent to which quantity demanded changes with a change in price. This is where price elasticity of demand comes into play. Price elasticity of demand (PED) is a measure of the responsiveness or sensitivity of the quantity demanded of a good to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Mathematically, it is expressed as: PED = (% Change in Quantity Demanded) / (% Change in Price) If the value of PED is greater than ________ ____ ______ ____ ___ _______ ______ _______ _______.
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