2.2.1 price elasticity of demand (PED) Flashcards
1
Q
What is price elasticity of demand?
A
It is the responsiveness of a change in demand to a change in price.
2
Q
What is the formula for PED?
A
% change in quantity demanded / % change in price
3
Q
What is the value of PED for a relatively elastic good?
A
It is >1.
4
Q
What is the PED of a relatively inelastic good?
A
It is <1.
5
Q
What is the PED of a unitary elastic good? What does this mean?
A
PED = 1. It is when change in demand which is equal to the change in price.
6
Q
What are the factors influencing PED? [6]
A
- Necessity
- Substitutes
- Addictiveness or habitual consumption
- Proportion of income spent on the good
- Durability of the good
- Peak and off-peak demand
7
Q
What can a firm do to price if a good has an inelastic PED?
A
They can raise price and quantity sold will not fall significantly.
