price elasticity of demand

Question 1

what is PED

Answer 1

• the responsiveness of quantity demanded to a change in price

Question 2

what does it measures

Answer 2

the extent to which the quantity demanded of a product or service is affected by a change in price.

Question 3

calculation

Answer 3

% change in quantity demanded divided by % change in price

Question 4

for the calculation

Answer 4

-above one = demand is price elastic
-below 1= demand is price inelastic

Question 5

what happens to a price elastic product if
-1. price increases
-2. price decreases

Answer 5

1. bigger % decrease in quanitty demanded = revenues fall
2. bigger % increase in quantity demanded= revenues rise

Question 6

what happens to a price inelastic product if
1. price increases
2. price decreases

Answer 6

1. small % decrease in quanitty demanded = revenue is the same, rises
2. small % increase in quantity demanded = revenues fall

Question 7

impact on decision-making

Answer 7

-price inelastic = able to raise prices to increase revenue without a big reaction from market as they still need to buy their product/ service
-price elastic = business have to think very carefully about any changes it makes to its pricing strategy because they will get a big reaction fro. their market

Question 8

factors influencing ped

Answer 8

-n. of substitutes/ competitors
-relative efforts/costs of switching to another product
-extent which the product is considered a necessity
-perceived value of the brand
-percentage of income spent on the product

Question 9

price inelastic characteristics

Answer 9

• products with strong loyalty and reputation
• the more essesential and needed the product is
  -products taht are demanded or consumed as a habit
  -not many alternatives