6 - Price elasticity of demand

Question 1

Price elasticity of demand

Answer 1

Measures the responsiveness of demand to a change in price

Question 2

Price inelastic

Answer 2

the change in demand is less than the change in price
for example if price decreased by 40% and demand only rises by 20%

Question 3

Price elastic

Answer 3

the change in demand is higher than the change in price
for example if the price decreased by 40% and demand increased by 100%

Question 4

Calculation for price elasticity of demand

Answer 4

%change in demand/%change in price

Question 5

Interpreting price elasticity

Answer 5

above 1 = elastic
below 1 = inelastic

Question 6

Factors affecting price elasticity of demand

Answer 6

Time
Competition for the same product (oporating in a highly saturated market ect)
branding - the stronger the branding the less likely substitutes are used
teh proportion of income spent on a product
product type

Question 7

The effect or price elasticity on pricing

Answer 7

a bsuiness selling a price inelstic product may see raising the price as a good idea as demand wont fall much
a business selling a price elastic product may not see raising prices as a good idea as demand will all greatly, lowering their prices may be more effective