Price Elasticity of Demand (PED) measures responsiveness of quantity demanded to price changes. Formula: PED = % Change in Quantity Demanded / % Change in Price. Interpretation: >1 (elastic—demand very responsive), =1 (unit elastic), <1 (inelastic—demand not responsive), 0 (perfectly inelastic), ∞ (perfectly elastic). Elastic demand: Luxury goods, many substitutes available (cars, branded items). Inelastic demand: Essential goods, few substitutes (salt, medicines). Determinants: Availability of substitutes, necessity vs. luxury, income share, time period (more elastic in long run). Real examples: Salt is inelastic (demand changes little with price); cars are elastic (luxury item, many substitutes). Applications: Businesses raise prices of inelastic goods for revenue; competitive markets with elastic demand focus on volume. Graphically: Steep curve = inelastic; flat curve = elastic. ICAI questions: Calculation, interpretation, real-world application. Exam tip: "Essential goods are inelastic" and "luxuries are elastic" are reliable rules. For calculation, watch for percentage vs. absolute changes.