How would you explain the concept of price elasticity of demand?
In a free market consumers have the freedom to decide what they want to buy and the quantity of the products that are bought. One of the important factors that determines the number of units of a product that is bought is the price of the product. The percentage change in the number of units bought to the percentage change in the price is called the price elasticity of demand (PED).
For most products, the elasticity of demand is negative. Consumers buy a smaller number of units of a product as the price of the product increases. The magnitude of the price elasticity of demand is the elasticity of demand of any product. When the PED is less than one, the demand is said to be inelastic. This is usually the case for products that are considered essential. If the product is one that can be done without, its PED has a magnitude larger than one which indicates a large fall in demand for a small increase in the price.