Elasticity recap

Question 1

What does each elasticity definition have in common?

Answer 1

measures the responsiveness of the quantity of the last word to a change in the first word.

Question 2

PED is the % change in quantity demanded divided by…

Answer 2

% change price.

Question 3

how relevant is the sign in PED?

Answer 3

not that relevant as the majority of the time PED will be negative except for the off chance it’s positive.

Question 4

What’s the difference between high PED and low PED?

Answer 4

High Ped (e.g. 3) means customers are very sensitive to price, i.e. they will switch brands for a better price. Low Ped (e.g. 0.5) means customers are more likely to stay loyal to products even when prices jump.

Question 5

DO businesses want to have high or low PED?

Answer 5

Low PED-can manipulate sales easier.

Question 6

The key factor of PED?

Answer 6

sustainability of the product- more unique the lower the PED making the product inelastic.