INTERPRETING PED

Question 1

What does PED stand for

Answer 1

Price elasticity of demand

Question 2

What is PED

Answer 2

The responsiveness of demand to a change in the price

Question 3

What is the formal to work out PED

Answer 3

% Change in quantity demanded divided by % change in price

Question 4

What does PED do

Answer 4

PED looks at how the change in price will affect the quantity demanded

PED identifies the strength between the price of a product/ service and the demand

Question 5

What does PED identify

Answer 5

PED identifies if a business Can a change it’s price without massively impacting the demand (can the business charge more without a big impact on the demand)

Question 6

What does a raise in price typically do

Answer 6

A raise in price tends to decrease the demand for the product or service
When one goes up another tends to go down.

Question 7

What is elastic demand

Answer 7

Elastic Demand: Imagine elastic demand like a stretchy rubber band. When the price of a product changes, people react a lot by either buying a whole bunch more if it gets cheaper or buying a lot less if it gets more expensive. It’s like stretching the rubber band, and it can stretch quite a bit because people are responsive to price changes. So, elastic demand means the quantity demanded is sensitive to price changes—it can stretch or contract easily.

Question 8

What is inelastic demand

Answer 8

Inelastic Demand: Think of inelastic demand like a solid rock. When the price of a product changes, people don’t really change how much they want to buy. It’s like the rock doesn’t budge much. So, inelastic demand means the quantity demanded doesn’t react much to price changes—it’s pretty solid and stable.

Question 9

How to identify an inelastic product

Answer 9

If the result is less than 1, it’s inelastic. In other words, if the percentage change in quantity demanded is smaller than the percentage change in price, you’ve got inelastic demand. It means people aren’t very responsive to price changes.

Question 10

Examples

Answer 10

• 0.3
• 0.97 - This is the most responsive (as the high the figure the more change in demand)
• 0.1
• 0.67
  0.52 - this would be a inelastic price, as the minus may be eliminated as it may be assumed that everybody understand that if one goes up the other must come down (this probably won’t happen in the exam)

The 0. represents that the demand is not terribly responsive to the pricing.

Question 11

What is elastic demand

Answer 11

Elastic demand Elastic demand happens when a small change in the price causes a big change in how much people want to buy.