Price Elasticity of Demand

Question 1

What is price elasticity?

Answer 1

How customers react to a change in price for goods.

Question 2

How do you calculate PED?

Answer 2

Percentage Change in Demand / Percentage Change in Price

Question 3

If the PED is less than 1, then a product is?

Answer 3

Price Inelastic

Question 4

If the PED is greater than 1, then a product is?

Answer 4

Price Elastic

Question 5

Price Elastic LOA? (5)

Answer 5

1. Due to lack of differentiation, products become price elastic
2. Customers are less loyal
3. Therefore if prices increase there will be a significant fall in demand
4. Pressure to keep prices low
5. Lower revenue and profits

Question 6

Price Inelastic LOA?

Answer 6

1. Through R&D
2. A business can differentiate their products
3. Customers are likely to stay loyal and become price Inelastic
4. Able to increase prices without significant fall in demand
5. Increase Profits and Revenue