Theme 1- 2.3 and 1- 2.4 Market equilibrium and PED Flashcards
1
Q
What is price elasticity of demand ?
A
The responsiveness in quantity demanded for a product as price changes.
2
Q
What is elastic demand ?
A
When there is a large responsiveness in demand as price changes.
3
Q
What is inelastic demand ?
A
When there is a small responsiveness in demand as price changes.
4
Q
What is predatory pricing ?
A
Deliberate attempt to force competitors out the market by setting prices very low or below average cost.
5
Q
What is the PED formula ?
A
Percentage change in qunatity demanded/percentage change in price.
6
Q
What affects PED ?
A
- incomes of consumers
- if a good has many substitutes
- products such as cigarettes are addictive.
- if a good is a luxury or necessity, ( luxury goods tend to be more elastic)
7
Q
What are the values of PED ?
A
When PED is :
- greater than 1 ==> elastic.
- less than 1 ==> inelastic.
- equal to 1 ==> unit elastic.
- equal to 0 ==> perfectly inelastic.
