PED

Question 1

What is PED?

Answer 1

PED measures how much quantity demanded will respond to a change in price..

Question 2

What is the equation for PED?

Answer 2

PED= %change in QD / %change in price

Question 3

What will happen to PED if price goes down?

Answer 3

PED will be negative which means QD will increase and be positive

Question 4

What will happen to PED if price goes up?

Answer 4

PED will be positive which means QD will decrease and be negative

Question 5

When is demand elastic?

Answer 5

Demand is elastic when PED is equal to any number from -1 to -infinity.
Demand is elastic when %change QD > %change P

Question 6

When is demand inelastic?

Answer 6

Demand is inelastic when PED is between -1 and 0. This means that consumers are unresponsive to changes in price

Question 7

When is demand unitary elastic?

Answer 7

Demand is unitary elastic when PED equals to -1 exactly. So %change QD is the same as %change P, where a change in price leads to the same change in QD

Question 8

When is demand perfectly inelastic?

Answer 8

Demand is perfectly inelastic when PED=0

Question 9

When is demand perfectly elastic?

Answer 9

Demand is perfectly elastic when PED = -infinity, which means consumers will respond more to changes in price.

Question 10

What factors influence PED?

Answer 10

1) Necessity
2)Addiction and habits
3)Availability of substitutes
4)Brand Loyalty
5)Proportion of income
6)Time Period

Question 11

What is a necessity

Answer 11

Necessity means that we need the good in order to live our lives.

Question 12

Luxury definition

Answer 12

Luxury means we don’t need it to live our everyday life, but it is nice to have if a consumer can afford it.