2.2 Flashcards
What is ped
Price elasticity of demand
It measures the responsiveness of quantity demanded to a change in price
Formula for PED
% change in demand //// % change in price
Characteristics of elastic PED
Beyond -1
A change in price causes a bigger change in demand - responsive
Almost a flat line
Price increases, total revenue decreases (responsive)
Characteristics of inelastic PED
Between 0 and -1
A change in prices causes a smaller change in demand
Very steep line
If price increases, total revenue increases (unresponsive)
Factors influencing PED
Splt
Substitutes
Proportion of income (cost of the good)
Luxury / necessity
Time (inelastic in the short term)
Name the types of pricing
Cost plus Skimming Penetration Predatory Competitive Psychological
Define predatory pricing
Below the cost of production
Drives out rivals
Illegal in the U.K.
Factors affecting pricing
DPCBS
Dolly Parton Can Bull Shit
Differentiation PED Cost of production Brand Stage in life cycle
Online pricing
Due to price comparison sites - mostly competitive pricing
Types of marketing
Innovation
Adverts
Distribution
What’s YED
Income elasticity of demand
Measures responsiveness of demand to a change in income
YED formula
% change in demand //// % change in income
Characteristics of income elastic
Beyond 1
A change in income causes a bigger change in demand
Characteristics of income inelastic
Between 0 and 1
A change in income causes a smaller change in demand
As income increases, what happens to the demand for normal goods
Increases
