Price Elasticity of Demand Flashcards
1
Q
What does PED measure?
A
It measures the responsiveness of quantity demanded given a change in prices
2
Q
How do you calculate PED?
A
% change of qd/ % change of price
3
Q
Why will the answer always be negative?
A
Law of demand
4
Q
What are the conclusions of the PED calculation
A
> 1 demand is price elastic
<1 demand is price inelastic
0 demand is perfectly price inelastic
1 demand is unit price elastic
5
Q
When may a demand for a good/service be price elastic or inelastic
A
Substitute- the more substitutes the more price elastic d is
% of income- the higher the % of income that price changes take, the more price elastic
Luxury/necessity- necessities are more price inelastic
Addictive- tends to be price inelastic
Time period- short run more price inelastic
