1.2.4 PED

Question 1

What is price elasticity of demand?

Answer 1

The Price elasticity of demand helps us to calculate how responsive the change in quantity demanded will be to a change in price

Question 2

What is the equation for PED?

Answer 2

% change in quantity demanded
———————————————– x 100 = PED
% change in price

Question 3

How do you calculate a change?

Answer 3

new value - old value
—————————– x 100 = % change
old value

Question 4

What does the PED of >1 mean?

Answer 4

The good is elastic. Demand is more responsive to price changes, an example of this is luxury products.

Question 5

What does the PED of between 0 and 1 mean?

Answer 5

The good is inelastic. Demand is less responsive to price changes, an example of this is necessities or addictive products.

Question 6

Factors influencing PED?

Answer 6

/ Availability of substitutes
/ Brand loyalty
/ Proportion of income spent
/ Luxury or necessity?
/ Time

Question 7

What is the significance of PED to a business?

Answer 7

If businesses can determine the price elasticity of demand for their products, they can adjust their pricing strategy to maximise their revenue