Why a Demand Curve Closer to the Origin Has Higher PED

Price elasticity of demand (PED) measures the responsiveness of quantity demanded to changes in price. Even though both demand curves X and Y are parallel, the PED of X is larger than Y because X is closer to the origin, meaning that for any given price change, the percentage change in quantity demanded is relatively higher for X than for Y.

Explanation:

1. Formula for PED:

   PED=% change in quantity demanded/ % change in price

   Since both curves are parallel, they have the same slope (i.e., the same absolute change in quantity for a given price change). However, PED is based on percentage changes, not absolute changes.

   
   

2. Relative Position and Percentage Changes:

   • Since X is closer to the origin, the initial quantity demanded along X is smaller than along Y.

   • A given absolute change in quantity represents a larger percentage change for X than for Y.

   • Similarly, a given price change is relatively larger in percentage terms for X than for Y.

   • Since PED depends on these percentage changes, X will have a higher PED than Y.

Example:

• Suppose a $1 price decrease leads to a 5-unit increase in quantity demanded along both X and Y.

• If the original quantity on X was 10 units, the percentage change in quantity is (5/10) × 100 = 50%.

• If the original quantity on Y was 20 units, the percentage change in quantity is (5/20) × 100 = 25%.

• Since the percentage change in quantity is larger for X, its PED is greater than that of Y.