Elasticity Flashcards
What is meant by PED?
Responsiveness of a quantity demanded to a change in price
Always negative
What should you do for security?
Write equation
What is the responsiveness of quantity demanded to a change in price?
Price elasticity of demand PED
What is the equation for price elasticity of demand
Percentage change in quantity demanded divided by percentage change in price
What does it mean to be price elastic
Change in price causes are more than proportional Change in demand
Define the term price in elastic
Increase in price causes a less than
proportional fall in demand
Define the term unitary elastic
The PED is one it is exactly proportional relationship between price and demand any increase in price will have the same affect on demand
How does brand loyalty determine the price elasticity of demand for a product?
Demand will always be more inelastic due to the fact that the company is always associated with better quality meaning less use of substitutes. Maybe due to social acceptance or reputation. Or advertisement
How is time a determinant of Price elasticity of demand for a product?
In the short run a product will be inelastic as it will take time for the consumer to change the spending patterns. For example find alternatives. They become more elastic over time as consumers can change their spending pattern and as it is a necessity. For example concert tickets are inelastic as there are no alternatives and they’re on for a short period of time. In the long run more alternatives forming Makes the mall monastic (E.G due to technological advances)
How does the nature of the product determine the price elasticity of demand for a product?
The good maybe habit-forming products (E.G.cigarettes) therefore consumers continue to buy due to the fact that they have formed an addiction. Could also be a necessity (E.G.rice). It will always be an elastic even a price rises they’ll be a less than proportional rise
How is number of close substitutes a Determinant of price elasticity of demand?
High number of substitutes means that the product is more elastic and the DiMarco will be more elastic as you could buy alternatives. Oil is a commodity in inelastic as There are limited alternatives which are expensive and hard to use
Why is price elastic demand important?
More inelastic demand close means that dogs are able to increase their price due to the fact that there would be a not a severe decrease in demand
How is Revenue calculated?
Price multiplied by quantity sold
What was the happen if a firm had a demand That was elastic and was to increase their prices?
Do you to the fact that it’s not a necessity, a habit forming good or has many substitutes family should not increase their price due to the fact that there will be a fall in demand
What should the firm do if the demand is elastic
They should reduce their prices and quantities are banded increases more than proportionally due to the fact that consumers have more incentive to buy due to the fact that they have more purchasing power
