1.2.4 price elasticity of demand Flashcards
1
Q
price elasticity
A
measures responsiveness of demand to change in price of good itself
2
Q
price elastic demand
A
a change in price will lead to a more than proportional change in demand i.e demand is sensitive to a change in price
3
Q
price inelastic demand
A
a change in price will lead to a less than proportional change in demand i.e demand is not so sensitive to a change in price
4
Q
ped > 1
A
elastic demand
5
Q
ped = 1
A
unit-elastic demand
6
Q
ped < 1
A
inelastic demand
7
Q
factors influencing ped
A
- the availability of substitutes
- the price of competitor goods.
- time
- branding
- nature of the good
- income
8
Q
ped formula
A
(% change in quantity demanded) / (% change in price)
9
Q
problems of forecasting price elasticity of demand
A
- difficulty in finding accurate information
- ped changes over different price ranges
- ped will change depending on the stage of the economic cycle.
- tastes and fashion is constantly changing
- competitors don’t stand still
10
Q
significance of ped
A
- business people want to know how a change in price will effect revenue
- this will help them determine whether changing price is a good or bad marketing decision
11
Q
putting numbers into % ped formula
A
((change in quantity demanded) / (original quantity demanded) x100) /
((change in price) / (original price) x100 )
