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PED Flashcards

1
Q

Define PED

A

Price elasticity of demand

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2
Q

What does PED do?

A

Measures the responsiveness of quantity demanded given a change in price.

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3
Q

Equation for calculating PED

A

PED=
% change Quantity demanded /
%change in price

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4
Q

How do you calculate % change ?

A

Difference / origin X 100

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5
Q

If PED is greater than 1

A

Demand is price elastic

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6
Q

If PED is smaller than 1

A

Demand is price inelastic

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7
Q

If PED = 0

A

Demand is perfectly price inelastic

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8
Q

If PED = ♾️

A

Demand is perfectly price elastic

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9
Q

What does price elastic mean?

A

For any given price change there is a greater proportion of quantity demanded
(Quantity demanded changed by more than price change)

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10
Q

What does price inelastic mean?

A

When price changes quantity demanded will change but but at a smaller proportion (quantity demanded changed by much less than change in price)

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11
Q

What does perfectly price inelastic mean?

A

Regardless of change in price quantity demanded will never change

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12
Q

What does perfectly price elastic mean ?

A

Regardless of change in quantity demanded price will remain the same (A change in price will cause all quantity demanded to cease)

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13
Q

Calculate PED
Price of a pack of sweets ⬆️£4 to £5
Quantity demanded ⬇️150 to 135

A

PED = %change in QD / %change in price
= -10% / 25%
= -0.4 (price inelastic)

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14
Q

calculate PED
Price of sofa ⬇️ £1000 to £800
Quantity demanded ⬆️ 2000-3800

A

PED = %change QD / %change price
= 90% / -20%
= -4.5 (price elastic)

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15
Q

On a supply and demand diagram if demand is price elastic what will the curve look like?

A

Shallow (not perfectly horizontal)

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16
Q

On a supply and demand diagram if demand is price inelastic what will the curve look like?

A

Steep (not perfectly vertical)

17
Q

On a supply and demand diagram if demand is price perfectly elastic what will the curve look like?

A

Horizontal

18
Q

On a supply and demand diagram if demand is price perfectly inelastic what will the curve look like?

19
Q

The more substitutes the more price elastic or inelastic?

20
Q

The less substitutes the more price elastic or inelastic?

21
Q

Luxury goods are?

A

More price elastic

22
Q

Necessity good are?

A

More price inelastic

Econ Paper 1 (3 decks)

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