3.2g Price Elasticity of Demand

Question 1

What does PED measure?

Answer 1

The responsiveness of demand for a product following a change in price

Question 2

PED formula

Answer 2

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

Question 3

What is the PED if demand is perfectly inelastic?

Answer 3

0 - demand does not change at all when price changes

Question 4

What is the PED if demand is inelastic?

Answer 4

Between 0 and 1 - percentage change in demand is smaller than percentage change in price

Question 5

What is the PED if demand is unit elastic?

Answer 5

1 - percentage change in demand is exactly the same as percentage change in price

Question 6

What is the PED if demand is elastic?

Answer 6

Above 1 - percentage change in demand is larger than percentage change in price

Question 7

What happens if PED is inelastic and a firm lowers its price?

Answer 7

Total revenue decreases

Question 8

What happens if PED is inelastic and a firm raises its price?

Answer 8

Total revenue increases

Question 9

What happens if PED is elastic and a firm lowers its price?

Answer 9

Total revenue increases

Question 10

What happens if PED is elastic and a firm raises its price?

Answer 10

Total revenue decreases