Price Elasticity Of Demand(PED)

Question 1

PED

Answer 1

The response of demand to a change in price

Question 2

Price elastic

Answer 2

Consumers are very responsive to price changes

Question 3

Price inelastic

Answer 3

Consumers are not very responsive to price changes

Question 4

Formula for PED

Answer 4

% change in QD/ % change in price

Question 5

Determinants of PED

Answer 5

• Availability of substitutes- The more there are the more responsive to price consumers will be(elastic)
• Proportion of income spent on them-The lower it is, the less responsive to price consumers will be(inelastic)

Question 6

What influences how responsive demand is to price?

Answer 6

• Addictive or not?- if the product is highly addictive price does not matter
• Can purchase be put off?-If consumers can put off buying the product until a later date, they may do if price rises
• Is it a necessity- if consumers need the product then price is irrelevant

Question 7

Values for PED

Answer 7

0-1=Price inelastic demand
1= Unit elastic
>1= Price elastic

ALWAYS NEGATIVE