Lesson 9 - Price Elasticity Of Demand

Question 1

What is elastic demand?

Answer 1

Demand is sensitive to change and changes dramatically

Question 2

What is inelastic demand?

Answer 2

Demand that is insensitive to price, and does not change drastically

Question 3

What is the price elasticity of demand?

Answer 3

The responsiveness of demand to a change in price

Question 4

What is unit price elasticity of demand?

Answer 4

A change in price that results in an exact proportionate change in demand

Question 5

What is the equation for PED?

Answer 5

Change in quantity demanded / change in price

Question 6

Why is PED always negative?

Answer 6

Price and demand have an inverse relationship

Question 7

PED < 1 =

Answer 7

Inelastic demand

Question 8

PED > 1 =

Answer 8

Elastic demand

Question 9

PED = 1:

Answer 9

Unitary response

Question 10

Describe the relationship between PED and revenue

Answer 10

• If a firm has inelastic demand, they can still raise prices without losing customers
• if a firm has elastic demand, they have to be careful when raising prices

Question 11

Equation for profit:

Answer 11

Profit = total revenue (TR) - total costs (TC)

Question 12

Equation for total revenue:

Answer 12

TR = P x Q

Question 13

How do firms make their demand more inelastic?

Answer 13

Differentiating their products from competition to try to achieve brand loyalty

Question 14

Why do elasticities vary?

Answer 14

• % of income used
• substitutability
• time to respond to a price change
• width of the market