1.2.4 - PED Flashcards by Lily Alford

Q

what is price elasticity?

A

it measure the responsiveness of demand for a product to a change in its price

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Q

what is the PED formulation?

A

PED = %change in demand / %change in price

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Q

what is price elasticity?

A

when the PED is a negative number >1
changes in price have a proportionately larger effect on demand/sales

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Q

what is price inelasticity?

A

when PED is between 0 and -1
changes in price have a proportionately smaller effect on demand/sales

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Q

impact of PED on revenue

A

price elastic and increasing price - revenue decreases
price elastic and decreasing price - revenue increases
price inelastic and increasing price - revenue increases
price inelastic and decreasing price - revenue decreases

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Q

factors that influence PED

A

degree of product differentiation
availability of direct substitutes
branding and brand loyalty

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Q

why is PED useful?

A

it can help with sales forecasting
it can help with pricing strategies

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Q

drawbacks of price elasticity

A

PED values often change over time and the unpredictability can undermine the usefulness of it

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