Elasticities of demand- PED's

Question 1

PED’s

Answer 1

Price elasticities of demand is the responsiveness of demand to a change of price (the way consumers react). A numerical value with no units and is usually negative.

Question 2

PED formula

Answer 2

% change in quantity demanded/% change in price
If answer>1, demand is price elastic
If answer = 0, demand is perfectly inelastic
If answer<1, demand is price inelastic
We look at the number an not he positive or negative symbol

Question 3

Demand vs quantity demanded

Answer 3

Demand is shown by the whole curve whereas quantity demanded is how much is demanded at a particular price

Question 4

Price elastic goods

Answer 4

For price elastic goods, a change in price leads to a bigger % change in quantity demanded e.g. toothpaste. This is usually found in goods with more subs

Question 5

Perfectly elastic goods

Answer 5

For perfectly elastic goods, there are infinite possibilities for demand as there is a very high elasticity but is very rare in reality. Any change in price means demand will fall to 0 as consumers are willing to buy at a specific price but nothing higher or lower.

Question 6

Inelastic goods

Answer 6

For inelastic goods, a change in price leads to a smaller change in quantity demanded e.g. toilet paper and petrol. There are usually no close subs.

Question 7

Perfectly inelastic goods

Answer 7

For perfectly inelastic goods, any change to price means no change to quantity demanded. Consumers are willing to buy at various prices as there are no subs e.g. insulin.

Question 8

What are PED’s influenced by

Answer 8

Type of good
Substitute availability
% of income spent on good

Question 9

Type of good

Answer 9

Essentials (elastic)
Non essentials (inelastic)
Addictive substances (inelastic)
Urgent/cant be postponed (inelastic)

Question 10

Substitute availability

Answer 10

More availability=more elastic

Question 11

% of income spent on good

Answer 11

Expensive goods tend to be more elastic e.g. fridges can be different prices.

Question 12

Total revenue

Answer 12

Price of unit x quantity sold

Question 13

Elastic good

Answer 13

Price and revenue have an indirect relationship

Question 14

Inelastic good

Answer 14

Price and revenue have an direct relationship

Question 15

Inelastic demands

Answer 15

If a demand is inelastic, then increasing the price will cause the quantity demanded to decrease but this can still lead to an increase in revenue e.g. revenue was £15 x 100 units=£1500
now revenue is £30 x 80 units=£2400

Question 16

Elastic demands

Answer 16

If a demand is elastic, firms are unlikely to increase price as this could lead to a fall in revenue. Instead they could try advertising to increase brand loyalty and make demand more inelastic e.g. revenue was £15 x 100 = £1500
Now revenue is £20 x 60 = £1200