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Business skone > 1.2.4 PED > Flashcards

1.2.4 PED Flashcards

1
Q

What does PED stand for

A

Price elasticity of demand

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2
Q

What is PED

A

Is a measure of how responsive demand is to a change in price

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3
Q

What type of relationship is there between price and demand

A

Inverse

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4
Q

If price increases by 10% and demand falls by 5% is it inelastic or elastic and why

A

Inelastic as the fall in demand is less than the fall I price

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5
Q

If price increases by 10% and demand falls by 13% is it elastic or inelastic and why

A

Elastic as the all in demand is greater than the fall in price

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6
Q

What is price elastic demand

A

That a change in price will lead to a more than proportional change in demand

Eg demand is more sensitive to price changes

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7
Q

What is price inelastic demand

A

A change in price will lead to a less than proportional change in demand

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8
Q

How do you calculate price elasticity

A

%change in quantity demanded / %change in price

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9
Q

What is inflation

A

General rose in price above wages

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10
Q

If PED is between 0 and -1 then demand is

A

Price inelastic

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11
Q

If PES is less than -1 then demand is

A

Price elastic

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12
Q

Factors that affect the value of PED coefficient include

A
  • Availability of substitutes
  • the price of competitor goods
  • time
  • branding
  • income
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13
Q

Explain how the availability will effect the value of PED coefficient

A

The closer the substitute and the more that are available the huger the price elasticity of demand

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14
Q

Explain how the price of competitor goods will effect the value of PED coefficient

A

If the price of goods in competition with a product increases this will effect demand and price elasticity if demand

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15
Q

Explain how time will effect the value of PED coefficient

A

The longer the time period the higher the price elasticity of demand. Given more time other firms have the ability to produce similar products and customers have more change if adapting their buying habits

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16
Q

Explain how branding will effect the value of PED coefficient

A

Firms spend time and money building up their brand image . By creating brand loyalty firms know that their customers will be willing to pay more for the product and they can therefore raise prices as the PED is lower

17
Q

Explain how income will effect the value of PED coefficient

A

If customers incomes are higher than the isssue of price becomes less important to the consumer and it is easier for firms to raise price as the PED Is Lower

18
Q

A Luxury good will be price ?

As demand will be ? Sensitive to changes in price

A

Elastic

More

19
Q

A necessity good will be price ?

As demand will be ? Sensitive to change In price

A

Inelastic

Less

20
Q

Why do company’s care about PED

A

Businesses want to know how a change in price will impact on revenue

This will help determine whether changing price is a good or bad marketing strategy

21
Q

How does raising the selling price effect elastic demand

A

Sales revenue decreases

22
Q

How does easing selling price effect inelastic demand

A

Sales revenue increases

23
Q

How does lowing the selling price effect elastic demand

A

Sales revenue increases

24
Q

How do lower selling price effect inelastic demand

A

Sales revenue decreases

25
Q

What’s the problem of forecasting price elasticity of demand

A
  • the price elasticity of demand for a product is constantly changing in a dynamic world
26
Q

It is difficult for firms to measure because

A
  • difficultly in finding accurate information
  • price elasticity changes over different price ranges
  • price elasticity will change over the period of the economic cycle
  • tastes and fashions are constantly changing
  • COMPETITORS don’t stand still
  • they’re continually improving existing products

Business skone (24 decks)

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