1.2.4 price elasticity of demand

Question 1

price elasticity of demand definition

Answer 1

the responsiveness of demand to a change in price. PED looks at the responsiveness of the quantity demanded for a product following a change in price.

Question 2

price elasticity of demand equation:

Answer 2

        % change in price 

(queen/people)

Question 3

percentage change equation:

Answer 3

new figure - original figure
————————————– x100
original figure

Question 4

price inelastic demand definition:

Answer 4

a change in price results in a proportionately smaller change in demand

Question 5

price elastic demand definition:

Answer 5

a change in price results in a greater change in demand

Question 6

price inelastic demand

Answer 6

• when a product has a price elasticity of less than 1
• price change has hardly any effect on demand
• these product are usually well-differentiated or a well-branded product with few competitors
• they could also be necessities e.g. central heating, loo roll

Question 7

price elastic demand

Answer 7

• when a product has a price elasticity of greater than 1.

- the demand of this product is very dependent on the price

Question 8

factors influencing price elasticity of demand:

Answer 8

• income of customers
• necessity of luxury
• frequency of purchase
• brand loyalty
• degree of differentiation
• cost of switching products
• availability of substitutes
• time

Question 9

why is price elasticity a useful concept for a business?

Answer 9

it helps to decide how consumers will react to a change in a products price. They will be eager to know the extent to which demand will be affected and therefore, the impact on their total revenue