elasticity of demand Flashcards
how to calc ped
perc change in quantiy/perc change in price and
change in quantity times price divided by quantiy times change in price
midpoint method
chang in qunaity/qauntity average times price average/ change in price
What does the law of demand state?
Consumers will buy more as the price goes down, and less as the price goes up.
Give examples of products with elastic demand.
Pizza, boats, and houses.
What characterizes inelastic demand?
Inelastic demand occurs when the change in quantity demanded is less than the change in price, shown by a “taller” demand curve.
What is elastici demand
lastic demand occurs when the change in quantity demanded is greater than the change in price, often shown by a “flatter” demand curve.
How does quantity demanded respond to price changes in inelastic demand?
Quantity demanded is relatively insensitive to price changes; consumers continue buying similar amounts despite price fluctuations.
Give examples of products with inelastic demand.
Nappies, petrol, and cigarettes.
What are the determinants of Price Elasticity of Demand (PED)?
) Availability of substitutes, 2) Whether it is a luxury or necessity, 3) Time, and 4) Proportion of income spent.
How do we interpret PED values?
If PED < 1, the product is relatively inelastic; if PED > 1, the product is relatively elastic.
Why is understanding the link between elasticity and total revenue (TR) important for businesses?
helps businesses predict how changes in price will affect their total revenue, aiding in pricing strategy.
What type of products do businesses generally prefer to sell, and why?
Businesses prefer to sell inelastic goods because consumers’ demand is less responsive to price increases, which can increase revenue and profit.
How is Total Revenue (TR) calculated?
TR = Price (P) x Quantity (Q). For example, if Nike sells 1,000 Air Jordans at $100 each, TR is $100,000.
