Elasticity Of Demand Flashcards
What does price elasticity of demand show?
How demand changes with price
Is PED always positive or negative?
Negative
What does it mean if the PED is greater than 1?
The product is price elastic
What does it mean if the PED is less than 1?
The product is price inelastic
How do you calculate PED?
% change in quantity demanded divided by % change in price
What does it mean if a product is price elastic?
A change in price quickly results in change of demand
What does it mean if a product is price inelastic?
There is little change between price and demand
What does price elasticity affect?
Revenue and profit
What is an example of a price elastic product and why?
Dairy Milk - substitutes available
What is an example of a price inelastic product?
Iphone - loyalty
What does income elasticity of demand show?
How demand changes with income
How do you calculate YED?
% change in quantity demanded divided by % in real income
Do normal goods such as fruit and veg have a negative or positive YED? Why?
Positive because as income rises, demand rises
Is normal goods less or more than 1 YED?
More than 1
Do luxury goods such as designer products have a negative or positive YED? Why?
Positive because demand grows faster than income does
Is luxury goods less or more than 1 YED?
More
What are inferior goods?
Cheaper ‘value’ products e.g supermarket own brand
Do inferior products have a negative or positive YED? Why?
Negative because demand falls when income rises and demand rises when income falls
What does price elasticity help a manufacture decide?
Whether to raise or lower the price of a product
What does income elasticity help a manufacture decide?
What will happen to sales if economy grows or shrinks
Is YED always a negative or positive number?
Normal and luxury are positive.
Inferior are negative
