PED Flashcards
How to calculate PED
% change in quantity demanded / % change in price
What is the co-efficient
a value / number
What elasticity is penetration pricing likely to have
Elastic
What elasticity is price skimming likely to have
Inelastic
What does PED measure
The responsiveness of demand after a change in price
What does it actually mean?
For every 1% change of price, demand is going to change by the co-efficient value
Co-efficient GREATER than 1 means a product is…
Price Elastic
When a product is price elastic it means…
% change in quantity demanded is GREATER THAN the % change in price
Co-efficient LESS than 1 means a product is…
Price inelastic
When a product is price inelastic it means…
the % change in quantity demanded is less than the % change in price
When the price elasticity is exactly 1, it means…
the % change in quantity demanded = the % change in price
Impact on profit & sales revenue if a product/service is price ELASTIC
Decrease in price = Increase in sales revenue
WHEREAS
Increase in price = Decrease in sales revenue
Impact on profit & sales revenue if a product/service is price INELASTIC
Decrease in price = decrease sales revenue
WHEREAS
Increase in price = Increase in sales revenue
