1.2.4 PED Flashcards
What does PED stand for?
Price elasticity of demand
What is PED?
Price elasticity of demand is a measure of <b>how responsive demand is to a change in price</b>
What type of relationship is there between price and demand?
There is an <b>inverse</b> relationship between price and demand
As price goes up demand goes ____?
Down
As price goes down demand goes ____ ?
Up
What does Price elastic demand mean?
That a change in price will lead to a <b>more than </b>proportional change in demand i.e. demand is sensitive to price changes
What does Price inelastic demand mean?
That a change in price will lead to a <b>less than</b>proportional change in demand i.e. demand is not so sensitive to changes in price
PED can be calculated using the formula?
PED = % change in quantity demanded / % change in price
OR
(change in quantity demanded / change in price) * 100
In business it is assumed that the PED will always be ________?
Negative i.e. price and demand will always move in the opposite direction
If PED is between 0 and -1 then?
Demand is <b>price inelastic</b>
If PED is less than -1 then?
Demand is <b>price elastic</b>
What are some Factors influencing PED?
The availability of substitutes The price of competitor goods Time Branding Income Nature of the good (Luxury or Necessity)
If PED is elastic and you RAISE the selling price, Sales revenue will?
Decrease
If PED is elastic and you LOWER the selling price, Sales revenue will?
Increase
If PED is inelastic and you RAISE the selling price, Sales revenue will?
Increase
