1.2.4 PED

Question 1

What is the formula for total revenue

Answer 1

Total revenue = Price x Quantity sold

Question 2

What is the formula for PED

Answer 2

Percentage change in quantity demanded ÷ percentage change in price

Question 3

Formula to work out percentage change

Answer 3

Change ÷ original x100

Question 4

What is the definition of PED

Answer 4

A measure of the extent to which demand for a good or service changes when its price is changed

Question 5

Why is the PED almost always negative

Answer 5

If price increase demand decreases, they are opposites

Question 6

What is price inelastic

Answer 6

When the value of price elasticity of demand is less than 1 but greater than negative one.
E.g. 0.3
-1>+1

Question 7

What is price elastic

Answer 7

When the value of PED is more than one or less than negative one.
E.g. 5 or -3

Question 8

What is unitary

Answer 8

When the value of PED is equal to either negative 1 or positive 1

Question 9

How does price inelastic get effected by a change in price

Answer 9

Price inelastic products mean that less demand will be effected by a change in price

Question 10

What happens if there is a small change in price of a price elastic product

Answer 10

Small change in price = big change in quantity demanded

Question 11

What happens if there is a change in price of a price inelastic product

Answer 11

Small change in quantity demanded
Better for businesses as you loose less demand

Question 12

How does the availability of substitutes effect PED

Answer 12

The greater the number of substitutes available for a good or service, the higher the value of PED.

Question 13

What is a product with low PED

Answer 13

Petrol

Question 14

What is a product with high PED

Answer 14

Coca-cola

Question 15

How does the degree of product differentiation effect PED

Answer 15

Products can be different from the competition because of the design of the product itself or because of clever branding and promotion.

Question 16

How does time effect PED

Answer 16

The longer the period of time available, the higher will be the value of PED for a good or service.

Question 17

Example: when the price of oil was increased by 400% in 1973, demand hardly fell in the short term as there were no obvious substitutes. In the long term however, demand fell – why?

Answer 17

• Environmental reasons
• Electric cars
• There are now substitutes for oil e.g. gas

Question 18

Strategies to reduce PED value of a good/service

Answer 18

1. Increase Product Differentiation (unique)
2. Reduce the Level of Competition – achieved by knocking competitors out of the market.
   E.g. Lower prices, more advertising