2.2 Firms, Consumers and Elasticities of Demand Flashcards
(19 cards)
What is PED
Is the responsiveness of a change in demand to a change in price
Price elastic good
PED is >1
Change in price leads to significant change in demand
Price inelastic good
PED is < 1
Demand that is relatively unresponsive to a change in price
Unitary elastic good
PED=1
Change in demand is = to when price changes
Perfectly inelastic good
PED=0
Demand does not change when price changes
Perfectly elastic good
PED=Infinite
Demand falls to 0 when price changes
What are the 6 factors that influence PED
1.Necessity goods
2.Substitute goods
3.Addictiveness
4.Proportion of income spent on the good
5.Durablity
6.Peak and off-peak demand
What is cost plus
When a retailer wants to know the gross profit of a sale in advanced
What is price skimming
High original price set temporarily before competitors enter the market
What is price penetration
Setting a low price initially, below intended price, in order to attract customers
What is predatory pricing
Setting a low price to drive firms out
What is competitive pricing
Prices set at the same as competition
What is psychological pricing
Uses emotional ways to price goods
What 3 factors affect how a business decides its pricing startegy
1.Differentiation and USP
2.PED
3.Stage in the product life cycle
What is the impact of marketing on the demand curve
Could shift to the right if successful as demand will increase
What is YED
Income elasticity of demand is the responsiveness of a change in demand to a change in income
What is inferior goods
See a fall in demand as income increases. YED<0
What is normal necessary goods
Demand increases as income increase. YED>0
What is normal luxury goods
An increase in income causes an even bigger increase in demand. YED>1
