1.2 -the market

Question 1

price elasticity of demamd - ped

Answer 1

how much the price change affects the demand
price elasticity of demand = % change inn quantity demanded / % change in price
always negative so ignore - sign
if the price elasticity of demand is greater than one it is elastic
if price elasticity of demand is less than one it is price inelastic
price elastic- % change in demand greater than % change in price
price inelastic- % change in demand less than % change in price

Question 2

what does price elasticity of demand depend on

Answer 2

• necessity products like milk- price inelastic
• brand loyalty- loyal customers wont switch even if price goes up
• how often customer buys product - regular- inelastic

Question 3

price elastic

Answer 3

if price goes up demand changes
- shallow demand curve
- dependent on price

Question 4

price inelastic

Answer 4

if price changes demand doesnt
- steep demand curve
- isnt dependent on price

Question 5

sales revenue

Answer 5

sales revenue = selling price x sales volume

Question 6

how does price elasticity affect sales revenue

Answer 6

if product is price elastic, price increase makes sales revenue go down
firm can increase sales revenue by reducing price
- if product is inelastic rise in price will make sales revenue go up

Question 7

income elasticity of demand- yed

Answer 7

income elasticity of demand = % change in quantity demanded / % change in income
shows how demand for a product changes as income changes

Question 8

what does income elasticity of demand depend on

Answer 8

if product is normal or inferior
normal products have positive income elasticity of demand
inferior have negative income elasticity of demand

Question 9

how does elasticity help a business to make choices

Answer 9

helps them to decide whether to raise or lower the price of a product
if product is elastic they are more likely to set low and competitive prices to increase revenue
inelastic products set high prices and price skimming to increase revenue
income elasticity helps business to see what will happen to the sales if the economy grows or shrinks