Price Elasticity of Demand

I remember ranting about the failures of the model of price elasticity of demand. I finally found some time to have a look at the maths of it, and actually it turns out that it works rather nicely.

Taking a standard PED of -0.8, Wolfram Alpha (which I affectionately call ‘Walfa’) kindly plots the graphs for me (click to view the Wolfram Alpha page):

It makes sense: asymptotes at the axes are a theoretical assumption. On the other hand it completely wrecks any assumptions about straight lines.

In other news, I’m away for the next week on a walking trip in Snowdonia which should be immensely good fun (and photographic).


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