I understand that Price Elasticity of Demand is the sensitivity of quantity demanded related to change in price. And the formula is simply the percent change of demand by percent change of price.

But I am confused when this principle is plotted on the demand curve as appeared below

[https://mk0iejdv97elgku0ls15.kinstacdn.com/wp-content/uploads/2011/07/PED1.jpg](https://mk0iejdv97elgku0ls15.kinstacdn.com/wp-content/uploads/2011/07/PED1.jpg)

I was trying to make sense of it but ended up seeing inelastic on the top and elastic on the bottom of the curve because as price increases and quantity decreased, PED should come closer to < 1, isn’t it?

Or maybe I just misunderstood the purpose of this graph. Could someone enlighten me? Thank you.

In: Economics

So if Apple bring out the iPhone 12 at $ 10,000 then there will be a few suckers that still buy it. Whereas if they price it at $ 100 then it’ll sell like hot cakes. Now $10,000 x 100 sales will give you a cool $ 1 million. And say $100 x 10,000 sales would also give you $1 million As you bring down the price in the first case more people will be willing to buy and bring up the price in the second case then less people people are willing to buy you’ll find a point where your turnover (note total sales, not profit) is maximised (the area of the rectangle on the graph). So say $1,000 x 5,000 sales would give you $ 5 million turnover (that’s 5 times what your making in the other 2 scenarios). In the context of a solo demand graph elasticity or inelasticity doesn’t mean very much. It’s when you’re combining with a supply graph where the terms become significant. So when you look at the intersection of your supply graph that point will occur either on the elastic side or inelastic side and you have different potential strategies to try make either the supply or demand curves move (eg improving the quality of the product or finding cheaper ways of manufacturing). Those strategies are dependent whether the intersect falls on the elastic or inelastic side. Your ideal scenarios is for supply and demand to intersect at the PED = 1. Then your profits will be maximised.

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