2.7 PED

Question 1

Definition of PED?

Answer 1

The responsiveness of the quantity demanded to changes in its price

Question 2

Formula for PED?

Answer 2

% change in quantity demanded / % change in price

Question 3

What is Perfectly Inelastic Demand?

Answer 3

When QD is completely unresponsive to change in price and value of PED = 0

Question 4

What is Inelastic Demand?

Answer 4

When % Change in QD is less than % Change in Price, value of PED = 0 to 1

Question 5

What is Unitary Elasticity of Demand?

Answer 5

% Change in QD = % Change in Price
Value of PED = 1

Question 6

What is Elastic Demand?

Answer 6

% Change in QD is more than % Change in Price, value of PED = 1 to Infinite

Question 7

What is Perfectly Elastic Demand?

Answer 7

When the % Change in QD will fall to zero with any change in price, value of PED = infinity

Question 8

What are 3 Determinants of PED?

Answer 8

No. of Substitutes

Time Period

Necessity VS. Luxury

Question 9

Explain how No. of Substitutes Determines PED

Answer 9

If a product has many substitute products it will have an elastic demand ; vice versa

Question 10

Explain how Time Period Determines PED

Answer 10

Demand for a product is more likely to be elastic in the long run.

For example, if the price rises, consumers will search for cheaper substitutes

Question 11

Explain how Necessity vs Luxury Determines PED

Answer 11

A necessity is likely to be more inelastic as its required for survival (eg. food), However a luxury (eg. watches) isn’t therefore its more elastic