1.2.4 Price Elasticity of Demand (2/2) Flashcards
Factors that influence Price Elasticity of Demand
SI B NL
1) Substitutes / competition
2) Proportion of income spent on product
4) Branding
5) The extent to which a product is considered a necessity/luxury
How does subsitutes affect the PED of your product
more competition/substitutes means your product is likely to be highly elastic.
How does the proportion of income affect the PED of your product
if products are CHEAP and the proportion of a consumers income spent on a product is LOW then demand is likely to be price inelastic (E.G if a box rises from 10p to 12p)
&
- VICE VERSA… if products are EXPENSIVE and the proportion of consumers income spent on a product is HIGH then demand is likely to be price elastic (e.g if a car rises from £20,000 TO £30,000 -> likely to be greater fall in demand as 10K can deter a customer
How does Branding affect the PED of your product
- the stronger + establisher the brand the less customers are go to substitutes. ( e.g unlikely to switch from Nike to Sondicos )
- Successful branding reduces the price elasticity of demand
When setting it’s pricing strategies a business may consider what?
Consider Price elasticity of demand when setting prices
When should a business set a low price?
should set a lower price if their product is price elastic
this would increase demand
When should a business set a high price
should set a high price if their product is price inelastic
their product will still be in demand even at a high price
When a business changes it’s price there will be change in demand.
Because of changes in demand it also means there will a change where else?
A change in the total revenue
Use the ur notes & the bluebook on the section - “Price elasticity of demand and total revenue” to gain an understanding.
- do practice question with the maths on end of topic test (blue book)
END OF TOPIC.
