Firms, Consumers and Elasticies of demand Flashcards
what is PED
The responsiveness of demand for a product to change in its price
what is the PED formula
% change in demand/ % change in price
What is elastic?
greater than -1
what is inelastic?
less than -1
what determines PED?
availability of substitutes, time, luxuries and proportion of income spent
What is YED formula?
% change In demand/ %change in income
what are normal goods?
Inelastic (0-1)
what are luxury goods?
elastic (more than 1)
What do inferior goods have?
a negative YED
What are habitual goods?
Alcohol/ cigarettes
What is dynamic pricing?
Price fluctuates based on market conditions, needs big data
what is price skimming
High price when new product is launched and price changes over time e.g. apple products
what is competitive pricing?
Setting prices based on rivals
what is cost-plus pricing?
Prices are fixed by adding a % profit margin to average cost of production
what is penetration pricing?
Very low prices for entering a new market
what is premium pricing?
Higher price than competitors to give the perception of a higher quality e.g. Bugatti that is £3million
what is predatory/ destroyer pricing?
Price is so low that competitors are forced to leave the market
what is price discrimination
Co ordinated on off/on peak times
what is psychological pricing?
99p instead of £1
