#AP Microeconomics: Price Elasticity of Demand - Your Ultimate Guide 🚀

Hey there, future AP Micro ace! Let's break down Price Elasticity of Demand (PED). This is a huge topic, so let's make sure you've got it down cold. Think of this as your pre-game huddle before the big exam. Let’s get started!

#What is Price Elasticity of Demand?

At its core, PED measures how sensitive consumers are to price changes. It's all about understanding how much the quantity demanded of a good changes when its price changes. Are people super responsive or not so much? That's what PED tells us.

Imagine two friends, Harry and Sally, buying turkey sandwiches. If a price increase makes Harry drastically reduce his sandwich purchases, but Sally barely changes her buying habits, Harry is more price-sensitive (his demand is more elastic), while Sally is less so (her demand is more inelastic).

#Calculating Price Elasticity of Demand

Here’s the formula:

E_d = \frac{%\Delta Q_d}{%\Delta P}

Where:

• $E_d$ is the price elasticity of demand coefficient
• $$ is the percentage change in quantity demanded
• $$ is the percentage change in price

Since demand curves are downward sloping, $E_d$ will usually be negative. We often use the absolute value to focus on the magnitude of the responsiveness. Let's calculate Harry's PED:

• Initial Quantity (Q1): 5 sandwiches
• New Quantity (Q2): 1 sandwich
• %ΔQd: ((1-5)/5) * 100 = -80%
• Initial Price (P1): $10
• New Price (P2): $15
• %ΔP: ((15-10)/10) * 100 = 50%

E_d = \frac{-80%}{50%} = -1.6

Harry's PED is -1.6 (or 1.6 in absolute value), indicating that his demand is relatively elastic.

#Types of Elasticity

There are 5 main types of elas...