1.2.4.PED

Question 1

PED

Answer 1

-How responsive the change in quantity demanded will be to change in price.
-PED is always negative value
-PED=%change in quantity demanded/ % change in price

Question 2

Interpretations of PED values

Answer 2

> 1: Elastic. Demand is more responsive to changes in price. Luxury products
-Between 0+1:Inelastic. Demand is less responsive to change in price. Necessities and addictive products

Question 3

Factors influencing PED:

Answer 3

-Brand loyalty
-Availability of substitutes(Less subs=price inelastic)
-Proportion of income taken up by product
-Luxury or necessity
-Time

Question 4

Significance of PED on businesses

Answer 4

-By determining PED for products , they can adjust their pricing strategy to maximise revenue
-If demand for product is relatively price inelastic raising price will lead to an increase in tot. revenue.
(Price skimming strategies best for inelastic products)

-If demand for product is relative price elastic raising price will lead to fall in revenue (Competitive pricing strategies are best)