PED

Question 1

Price Elasticity of Demand

Answer 1

Measures the responsiveness of demand to a change in price.
It helps entrepreneurs see the effect on their total revenue.

Question 2

Elastic PED

Answer 2

Quantity demanded Is highly price-sensitive
When %change in Qd > %change in price
Has stronger law of demand (>1)

Question 3

Inelastic PED

Answer 3

quantity demanded isn’t price-sensitive
When %change in Qd < %change in price
Has weaker law of demand (<1)

Question 4

Total revenue link

Answer 4

PED helps firms predit what happens to demand when price changes.
When demand is inelastic prices rise.
When demand is elastic prices fall.

Question 5

Determinants of PED

Answer 5

Substitutes availability, Time, Luxury/Necessity, Proportion of income spent, Market definition

Question 6

Substitutes availability

Answer 6

A product with more substitutes has greater PED

Question 7

Time

Answer 7

Demand for a product becomes becomes more price elastic over time since consumers now have time to adjust

Question 8

Luxury/necessity

Answer 8

Wants are more price elastic, needs are more price inelastic

Question 9

Proportion of income spent

Answer 9

Expensive goods are most price elastic since a % price increase takes up a larger portion of your income.

Question 10

Market Definition

Answer 10

When a market is defined more broadly it seems more price inelastic.