1.2.4 Price Elasticity of Demand

Question 1

What does PED measure?

Answer 1

Measures the responsiveness of demand to a change in price

- Can either be elastic or inelastic

Question 2

What is Elastic Demand and values?

Answer 2

When demand for product is sensitive to a change in price

Value be more than 1 e.g. 1.7, -2.4

Question 3

What is Inelastic demand and values?

Answer 3

When there’s very little change in demand with a change in price
Value will be between 0 and 1 e.g. 0.2, - 0.66

Question 4

What are 4 Factors influencing Price elasticity of demand?

Answer 4

• Availability of substitutes
• Frequency of purchase
• Necessities ( staple goods )
• ## Luxury goods

Question 5

How does Availability of Substitutes influence PED?

Answer 5

Larger number of available substitutes then the more sensitive demand will be to price meaning product is more elastic

Question 6

How does Frequency of Purchase influence PED?

Answer 6

Frequent purchase means consumer sensitive to changes in price means products are price elastic

Question 7

How do Necessities influence PED?

Answer 7

Necessities have lower prices elasticises as consumers must purchase the product despite price changes, product is inelastic

Question 8

How do Luxury Goods influence PED?

Answer 8

Luxury goods mean large investments so consumers very sensitive to price change meaning product is elastic

Question 9

What is the PED Formula?

Answer 9

% change in Quantity demanded / % change in Price

Question 10

What is the change in price formula?

Answer 10

( Price New / Price Old ) / Price Old X 100