1.2.4 Price elasticity of demand

Question 1

What is the price elasticity of demand?

Answer 1

Measures the extent to which the quantity of a product demanded is affected by change in price

Question 2

What is the formula for PED?

Answer 2

% change in quantity demanded / % change in price x 100

Question 3

What is the formula for percentage change?

Answer 3

new - old / old x 100

Question 4

If the value of ped is more than one what does this mean?

Answer 4

That its price elastic-
If there is a change in price there will be a big change in demand

Question 5

If the value of ped is less than one what does this mean?

Answer 5

That its price inelastic-
If there is a change in price there will be a small change in demand

Question 6

If the value of ped is exactly one what does this mean?

Answer 6

The change in demand is equal to the change in price

Question 7

What 3 factors affect PED

Answer 7

Brand loyalty
(will be price inelastic if loyal cust)

Ability for substitutes
(will be price inelastic for things that have few substitutes)

Luxury or necessity
(if necessity, will be inelastic)

Question 8

What is the significance of PED to a business?

Answer 8

-Can determine price elasticity demanded products so they’re able to adjust pricing strategies and maximize revenue

Question 9

If demand for a product is price inelastic what will raising the price do?

Answer 9

Maximise revenue

Question 10

If demand for a product is price elastic what will raising the price do?

Answer 10

Decrease revenue