1.2.4 Price elasticity of demand

Question 1

price inelastic demand

Answer 1

steep curve
where demand is less responsive to a change in price

Question 2

price elastic demand

Answer 2

flatter curve
where demand is responsive to a change in price

Question 3

PED formula

Answer 3

Percentage change in quantity demanded / percentage change in price

percentage change = change /original * 100

Question 4

price elastic (calculation)

Answer 4

PED > 1
% change in quantity demanded is greater than the % change in price

Question 5

price inelastic (calculation)

Answer 5

PED < 1 (with and without minus)
% change in price is greater than the % change in quantity demanded

Question 6

unitary elasticity (calculation)

Answer 6

PED =1
% change in price is equal to the % change in quantity demanded

Question 7

formula total revenue

Answer 7

selling price * quantity sold

Question 8

PED (0 to -1)and the impact on revenue

Answer 8

inelastic
price rise –> demand fall –> total revenue increase
price fall –> demand rise –> total revenue decrease

Question 9

PED (> -1)and the impact on revenue

Answer 9

elastic
price rise –> demand fall –> total revenue decrease
price fall –> demand rise –> total revenue increase

Question 10

factors that determine the value of price elasticity of demand

Answer 10

number of close substitutes (the more/closer substitues there are the more elastic demand will be in response to a change in price)
degree of product differentiation / necessity (if necessitive or addictive –> inelastic)
price od product in relation to total income ( expensive –> elastic, cheap –> inelastic)
branding/brand loyalty

Question 11

strategies to reduce price elasticity

Answer 11

increase product differentiation –> make your product diffrent in customers perception
reduce price competition –> e.g. predatory pricing (low, loss making prices

Question 12

PED definition

Answer 12

It measures the responsiveness of the quantity demanded of a good or service to a change in its price.