11) PED Flashcards
What is the formula for PED
%
What does PED mean
⚫responsiveness of demand
➡️to a change in price
How do you calculate percentage change
NV-OLV➗OV X 100
Interpret the value of PED if its greater than one
⚫️price elastic
➡️demand is responsive to a change in price
➡️change in price results in a greater change in quantity demanded
➡Forexample
➡️a 10% fall in price
➡️results to more than 10% rise in quantity demanded
Interpret the value of PED if its less than one
⚫️price inelastic
➡️demand not responsive to a change in price
➡️change in price results in a proportionately smaller change in quantity demanded
➡For Example
➡️10% fall in price
➡️results in a less than 10% rise in quantity demanded
Interpret the value of PED if its equal to one
⚫️unit elastic
➡️demand responds proportionately to change in price
➡Forexample
➡️10% fall in price
➡️results in 10% rise in quantity demanded
What is the determinate of the elasticity of demand
⚫️number and closeness of substitutes
⚫️habit forming
⚫️proportion of income spent on the good
⚫️easier it is to postpone the purchase
⚫️time period
How is the number and closeness of substitute a determinate of the elasticity of demand
⚫️close substitute
➡️elastic
⚫️no-close substitute
➡️price inelastic
How is goods which are habit forming a determinate of the elasticity of demand
⚫️if the good is habit forming
➡️e.g cigarette
➡️demand price inelastic
How is the proportion of income spent on the good a determinate of the elasticity of demand
⚫️larger the proportion of income spent on the good
➡️more price elastic demand lf that good
How is the easier its to postpone the purchase of a replacement good a elasticity of demand
⚫️the easier it is to postpone the purchase of a replacement good
➡️the more price elastic the demand will be
How is the time period a determinate of the elasticity of demand
⚫️longer the time period after a price changes
➡️more elastic the demand is likely to be
➡️because consumer take time to change spending habits
