PED

Question 1

What does the law of demand say about price and demand- what correlation

Answer 1

Price increase -> demand decrease
Price decrease -> demand increase
Suggests a negative correlation

Question 2

PED measures…

Answer 2

PED measures the responsiveness of demand to changes in price

Question 3

PED formula

Answer 3

% ▲ in quantity demanded
—————————————
% ▲ in price

Question 4

Elastic is when

Answer 4

When change in quantity demanded is greater than price
-> demand is sensitive when price changes

Question 5

Inelastic is when..

Answer 5

When change in quantity demanded smaller than price change
-> demand is not sensitive to price change
IDEAL

Question 6

PED and REVENUE

Answer 6

Elastic PED; + P = - R / - P = + R
Inelastic PED; + P = + R / - P = - R <- IDEAL

Question 7

Why is PED useful?

Answer 7

Managers can use PED to predict price changes on quantity demanded,
they can then use the info to eg stock ctrl

Question 8

Businesses want to be more ___, can do this by…

Answer 8

Inelastic
1. Establish brand loyalty
2. Have fewer rivals

Question 9

Issues + however

Answer 9

Not always accurate due to constant changes in external factors
However used and an approximation to guide managers on decisions