PED

Question 1

what is PED a measure of

Answer 1

PED= price elasticity of demand. it refers to the responsiveness of the consumers to a change in price

Question 2

how do you calculate PED

Answer 2

% change in quantity/%change in price=PED. INDIRECT EQN= change in price (not %)/change in quantity 9not %) multiplied by original quantity/original price

Question 3

define inelastic demand

Answer 3

the responsiveness is low (not changing/elastic) i.e= the % change in quantity demanded is lower than the % change in price. PED (TAKE WITHOUT SIGNS) is lower than 1.

Question 4

define elastic demand

Answer 4

the responsiveness is high (elastic/changing readily). i.e the change in quantity demanded is higher than the % change in price. PED (W/O + or -) is greater than 1.

Question 5

what is perfectly elastic demand and perfectly inelastic demand

Answer 5

perfectly elastic= a change in price will make the quantity demanded fall to zero. (horizontal line through price co-ordinate). perfectly inelastic= no response (inelastic) to change in price (vertical line through Q co-ordinate.) quantity demanded stays constant regardless of change in price.

Question 6

what is a unitary elastic good

Answer 6

% change in price is equal to % change in demand. (rectangle hyperbola where k is constant). PED=1

Question 7

why is PED ALWAYS negative

Answer 7

according to the law of demand, price is inversely correlated with demand. the sign is seperate from the value. the sign shows the inverse correlation/negative gradient.