8: Price Elasticity of Demand Flashcards
1
Q
Price Elasticity Formula (1)
A
% change in quantity demanded / % change in price
2
Q
Value of PED in decision making (2)
A
- Sales forecasting
- Pricing strategy
3
Q
Strategies to reduce PED (3)
A
- Increasing product differentiation
- Reducing the competition (e.g. through predatory pricing)
(Which both reduce substitutability)
4
Q
Why might a product’s PED change over time? (2)
A
- The degree of competition may change
- The level of differentation established by advertising may change
5
Q
Price Elasticity (2)
A
- The extent to which demand for a product
- Changes when its price is changed
6
Q
Determinants of PED (3)
A
- Degree of product differentiation
- Avaliability of substitutes
- Branding & Brand Loyalty
7
Q
A product with price-elastic demand has a price elasticity of ______
A
- Above 1 / Below -1
8
Q
External Constraint (1)
A
- Something outside the firm’s control that can prevent it achieving its objectives
9
Q
A product with price-inelastic demand has a price elasticity of ______
A
- Between 1 and -1
10
Q
Why are consumers better off buying price-elastic products (and services) (2)
A
- Close rivalry between suppliers
- Ensures efficent, value-for-money products
