PED measures how much the quantity demanded of a good or service changes in response to a change in its price. Think of it as the rubber band of economics - just how stretchy or elastic is our demand for a certain product if its price changes? Now, to get a bit technical, we use the following formula to calculate it

PED = % change in Quantity Demanded / % change in Price

Just like how the response of a rubber band is different based on how hard you pull, PED can be different based on the magnitude and direction of the price change.

PED has a funny trait - it's usually negative. Why? Because of the Law of Demand, which says when the price of a product increases, the demand for that product decreases, and vice versa. But economists, like a lot of people, prefer positive numbers. So, we ignore the negative sign and look at the magnitude of PED.

(Remember, though, when you're doing the math, don't forget the minus sign!)

PED values can tell us a lot about how a product's demand responds to price changes. Let's imagine it as a spectrum.

Price Elastic (PED > 1): Imagine an extremely stretchy rubber band. This is when a small price change leads to a big change in demand. For instance, if the price of avocados increases by 10%, and the demand drops by 20%, we have an elastic demand. Why? People can just switch to other fruits.

Price Inelastic (0 < PED < 1): Think of a rather stiff rubber band. Here, even a big price change leads to a small change in demand. For example, if the price of insulin increases by 10%, and demand only drops by 2%, we have an inelastic demand. Why? People need insulin for survival, there's no good alternative.

Unit Elastic (PED = 1): This is the Goldilocks zone - not too stretchy, not too stiff. Here, a change in price results in an equal change in demand. For example, if a 10% rise in the price of coffee leads to a 10% decrease in demand, the PED is unit elastic.

Perfectly Elastic (PED = ∞): This is like the finest spider silk - any price increase leads to a drop in demand to zero.

Perfectly Inelastic (PED = 0): The rubber band has now become a steel rod - no matter how the price changes, demand stays the same.