1.2.4 Price Elasticity of Demand ****** Flashcards
1
Q
How to calculate percentage change
A
price new - price old / price old x 100
2
Q
How to calculate PED
A
% change in quantity demanded / % change in price
3
Q
What is elastic demand?
A
When demand for the product is sensitive to a change in price. Value will be more than 1.
4
Q
What is inelastic demand?
A
Very little change in demand with a change in price. Values will be between 0 and 1.
5
Q
What factors influence price elasticity of demand?
A
- availability of substitutes: demand will be sensitive to price in a market where there’s lots of substitutes.
- frequency of purchase: products bought frequently tend to be very elastic
- necessities (staple goods): products are very price inelastic as customers will still buy it despite price changes
- luxury goods: high cost will cause consumers to pay attention to price, product is price elastic.
