chapter 11- PED

Question 1

definition of sales revenue/ total revenue

Answer 1

is the sum of money received from the sale of a good or service. it is calculated by the formula: p x q

Question 2

definition of profit

Answer 2

is the difference between a firm’s total revenues and its total costs. it is calculated by the formula : TR-TC
(total revenue - total cost)

Question 3

definition of price inelastic demand

Answer 3

describes demand for a product that is unresponsive to changes in price , mainly because of the lack of substitutes for the product

Question 4

definition of price elastic demand

Answer 4

describes demand for a product that is responsive to changes in price , usually due to substitutes being available

Question 5

definition of price elasticity of demand

Answer 5

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

Question 6

definition of price discrimination

Answer 6

occurs when firms charge different customers different prices for essentially the same product due to differences in PED.

Question 7

law of demand

Answer 7

states that as the price of a product increases, the quantity demanded will tend to fall

Question 8

when is a good price inelastic

Answer 8

when a price change causes a relatively small change in the quantity demanded

Question 9

responsiveness of change in the quantity demanded is dependent on…

Answer 9

the customers degree of ability and willingness to pay.

Question 10

when is a good price elastic

Answer 10

relatively large change in the quantity demanded of a product following a change in its price.

Question 11

calculation of PED

Answer 11

percentage change in quantity dd /

percentage change in price

Question 12

definition of unitary price elasticity

Answer 12

occurs when the percentage change in the quantity

demanded is proportional to the change in the price, so there is no change in the sales revenue.

Question 13

when does PED=0

Answer 13

demand being perfectly price inelastic

change in price has no impact on quantity demanded
absolutely no substitute ; suppliers can charge how much ever they want.

Question 14

when does PED=1

Answer 14

demand is unitarily price inelastic.

Question 15

when does PED = infinity

Answer 15

demand is perfectly price elastic

change in price leads to 0 quantity demanded
meaning, customers switch to buying other substitute products.—- very delicate

Question 16

PED determinants

Answer 16

substitutes
income
degree of necessity
habits
advertising
time
durability
cost of switching(mobile plans)
breadth of definition of product

Question 17

how PED helps producers

Answer 17

• helping producer to decide on their pricing strategy
• predicting the impact on producers following changes in the exchange rate
• deciding which products to impose sales taxes on(govt)
• determining taxation policies