chapter 11 - ped

Question 1

definition of:

price elasticity of demand

Answer 1

measures the extent to which demand for a product changes due to a change in its price

Question 2

definition of:

price inelastic

Answer 2

demand for product is unresponsive due to the lack of substitutes of the product
-ped for product is less than 1

Question 3

definition of:

price elastic

Answer 3

demand for a product is responsive due to substitutes being available for the product
-ped for product is greater than 1

Question 4

calculating ped

Answer 4

percentage change in quantity demanded/ percentage change in price

Question 5

definition of:

unitary price elasticity

Answer 5

percentage change in quantity demanded is proportional to change in price, so there’s no change in sales revenue

Question 6

perfectly price inelastic

Answer 6

no impact on quantity demanded

Question 7

perfectly price elastic

Answer 7

0 quantity demanded

Question 8

determinants of ped

Answer 8

substitution 
income
breadth of definition 
cost of switching 
necessity 
habits fashion and taste 
advertising and brand loyalty 
time
durability

Question 9

definition of:

sales revenue

Answer 9

sum of money received from the sale of good or service

formula= P x Q

Question 10

definition of:

profit

Answer 10

difference between a firm’s total revenues and its total cost
formula= TR - TC

Question 11

significance of ped for decision makers

Answer 11

• pricing strategy
• gov deciding what products to impose sales tax on
• predict the impact on producers following changes in exchange rate
• determine taxation policies

Question 12

definition of:

price discrimination

Answer 12

firms charge different customers different price due to differences in ped