Pack 5 Flashcards
Define PED in words
The measure of responsiveness of the quantity demanded of a good or a service to a change in its price.
How is PED calculated?
Change in percentage quantity demanded over change in percentage price.
Use numerical examples (referring to the size of the %change in price and the size in %change in quantity demanded) to explain price elastic and inelastic demand.
Price elastic= Demand is responsive to a change in price, the % change in Demand will be greater than the % change in price.
Price inelastic is opposite.
Explain the four key factors which effect price elasticity of demand (don’t just state them)
Availability of substitutes, it can increase elasticity
Time period, it takes long to notice change
Proportion of ur income, if small u won’t care
Necessity, you have to but it.
What does a PED of -1 mean?
Unitary price elasticity of demand.
What does a PED of 0 mean?
Perfectly inelastic
What does a PED of -2 mean?
Relatively priest elastic
What does a PED of -0.2 mean?
Relatively price inelastic.
How might PED be estimated and why is this often difficult?
Past data, trends can change.
Show relatively and perfectly price elastic demand on one diagram and relatively and perfectly price inelastic demand on another.
1 = first will be slightly slanted and other will be horizontal.
2= first will be slightly slanted and other will be vertical.
Explain using a diagram what a business selling products with price inelastic demand should do to price to increase revenue.
Increases price as change in quantity demand will be small
Explain using a diagram what a business selling products with price elastic demand should do to price to increase revenue.
Decrease price as changes in quantity demanded will be big.
