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Price elasticity of demand and income elasticity of demand are two important concepts in microeconomics used to measure the responsiveness of quantity demanded to changes in different economic variables. While both are elasticities, they relate to different factors and provide different insights about consumer behavior and the nature of goods. Price Elasticity of Demand (PED) Price elasticity of demand refers to the degree of responsiveness of the quantity demanded of a good to a change in its own price. It is calculated using the following formula: PED = (% Change in Quantity Demanded) / (% Change in Price) If the absolute value of PED is greater than 1, the demand is said to be elastic, meaning consumers respond significantly to price changes. If it is less than 1, demand is inelastic, implying that changes in price lead to relatively smaller changes in quantity demanded. When PED equals 1, demand is said to be unitary elastic. There are several factors influencing price elasticity of demand: 1. Availability of Substitutes: If there are close substitutes available, the demand is likely to be more elastic. 2. Nature of the Good: Necessities tend ____ ______ ________ _________ ____ _________ __________ _______ ____ ______ _________ ___.
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