Above 1 is elastic, below 1 is inelastic, exactly 1 is unitary, 0 is perfectly inelastic.
Ignoring the sign, a PED value between 0 and 1 means demand is price inelastic. Quantity demanded changes by a smaller percentage than price. A value greater than 1 means demand is price elastic: quantity changes by a larger percentage than price.
Unitary elasticity is exactly 1: quantity changes by the same percentage as price. Perfectly inelastic demand is 0: quantity does not change at all when price changes.
Perfectly elastic demand is infinite. Any rise in price above the current level makes quantity demanded fall to zero.
On a diagram, draw inelastic demand as a steep curve and elastic demand as a flat curve. Perfectly inelastic demand is a vertical line. Perfectly elastic demand is a horizontal line.
- Inelastic
- 0 < PED < 1 (ignoring the sign): steep demand curve.
- Elastic
- PED > 1: flat demand curve.
- Unitary
- PED = 1.
- Perfectly inelastic / elastic
- PED = 0, vertical line / PED infinite, horizontal line.
| PED (ignoring sign) | Description | Demand curve |
|---|---|---|
| 0 | Perfectly inelastic | Vertical |
| Between 0 and 1 | Inelastic | Steep |
| 1 | Unitary | - |
| Greater than 1 | Elastic | Flat |
| Infinite | Perfectly elastic | Horizontal |
Worked example: Interpreting values in an answer
A table gives PED values for three goods. Here is how to interpret each.
- Insulin, PED = 0: perfectly inelastic. Patients buy the same amount whatever the price.
- Rice, PED = -0.3: inelastic. A 10% price rise cuts quantity demanded by only 3%.
- A particular brand of sneakers, PED = -2.5: elastic. A 10% price rise cuts quantity demanded by 25%.
- Compare the size of the number, not the minus sign.
Watch out for this
A PED of -2 is less elastic than -0.5 because -2 is the smaller number.
Compare the size, ignoring the sign. 2 is bigger than 0.5, so a PED of -2 is more elastic.
Check your understanding
A good has a PED of -1.4. What does this mean?
- Demand is elastic: a 10% price rise cuts quantity demanded by 14%.
- Demand is inelastic because the value is negative.
- Demand is unitary because the value is close to 1.