PED (1.2.4)

Question 1

What is Price Elasticity of demand?

Answer 1

Price elasticity of Demand is the responsiveness of price increase on the quantity demanded of a good.

Question 2

What is the formula for PED?

Answer 2

PED=%Change in QD/ %Change of P (Que before you Pee)

Question 3

If PED is greater than (>) 1 is it Elastic or Inelastic?

Answer 3

Elastic

Question 4

If PED is between 0 and 1 is it Elastic or Inelastic?

Answer 4

Inelastic

Question 5

What is the formula for % Change?

Answer 5

% Change= ((New-Old)/Old)x100

Question 6

If PED for popcorn at cinema is 0.8 and price of popcorn is £5 but increased by £1 what is the change in QD?

Answer 6

(£6-£5)/ £5
x100= 20%

-0.8= x/ 20%
x=-0.8x20%
x= -16% or QD falls by 16%

Question 7

What happens to QD and P when PED is Elastic?

Answer 7

If price increases by 10%, QD will fall by 20% because people wont want to buy the increased price products.

Question 8

What happens to QD and P when PED is Inelastic?

Answer 8

If price increases by 10%, QD will fall by 5% because people will still want to buy the increased price products but there is a smaller change in fall in quantity.

Question 9

What should you do to the price of the product if your Price is Elastic?

Answer 9

You should decrease your price

Question 10

What should you do to the price of the product if your Price is Inelastic?

Answer 10

Raise your price to maximize Total revenue

Question 11

What are the Factors that Affect PED? (9 Factors)

Answer 11

-Availability of the Substitutes
-% Income spent on Product
-Type of Product
-Durability of Product
-Sustainability of Product
-Health Benefits of Product
-Brand Loyalty
-Whether its a trend
-Need or Want

Question 12

How does brand loyalty affect PED? +e.g.

Answer 12

If consumers are brand loyal to a company they might refuse to buy an alternative no matter what.
E.g. Coke consumers are more brand loyal to Coke and refuse to buy Pepsi, even though their taste is very similar

Question 13

Why is PED significant to businesses?

Answer 13

If businesses can determine the price elasticity of demand for their products, they can adjust their pricing strategy to maximise their revenue.
If demand is Price Inelastic- Price should be increased to increase Total Revenue
If demand is Price Elastic- Price should be lowered to raise total revenue

Question 14

What does the Price Elastic Demand look like on a graph?

Answer 14

Looks more horizontal

Question 15

What does the Price Inelastic Demand look like on a graph?

Answer 15

Looks more vertical (more like an I)