2.7

Question 1

define inelastic demand

Answer 1

Price inelastic demand
describes demand
for a product that is
unresponsive to changes
in price, mainly because of
the lack of substitutes for
the product.

Question 1

define price elasticity of demand

Answer 1

Price elasticity of demand
(PED) measures the extent
to which demand for a
product changes due to a
change in its price.

Question 2

define price elastic demand

Answer 2

Price elastic demand
describes demand for a
product that is responsive
to changes in price, usually
due to substitutes being
available.

Question 3

how do we calculate the price elasticity in demand

Answer 3

Percentage change in quantity demanded / Percentage change in price

Question 4

define unitary price elasticity

Answer 4

Unitary price elasticity
occurs when the
percentage change in the
quantity demanded (or
supplied) is proportional to
the change in the price, so
there is no change in the
sales revenue.

Question 5

what affects the PED

Answer 5

• number of substitutes, time period, proportion of income spent on the good or service, necessity

Question 6

what is sales revenue

Answer 6

Sales revenue is the amount of money received by a supplier from the sale of a good or service. It is calculated by multiplying the price charged for each product by the quantity sold

Question 7

define profit

Answer 7

Profit is the difference
between a fi rm’s total
revenues and its total costs

Question 8

define price discrimination

Answer 8

Price discrimination occurs
when fi rms charge different
customers different prices
for essentially the same
product due to differences
in PED