PED

Question 1

Price elasticity of demand (PED)

Answer 1

PED measures how much quantity demanded changes in response to a change in price

PED = %△Qd/ %△P

Question 2

Elastic demand (PED)

Answer 2

When PED is between -1 and -∞. Demand is very responsive to changes in price.

Question 3

Inelastic demand (PED)

Answer 3

When PED is between -1 and 0. Demand is unresponsive to changes in price.

Question 4

Unitary elastic demand (PED)

Answer 4

When PED = -1

Question 5

Perfectly inelastic demand

Answer 5

When PED = 0. Demand will not respond at all to a change in price.

E.g. life-saving medicine

Question 6

Perfectly elastic demand

Answer 6

When PED = -∞. Demand will be infinitely responsive to a change in price.

Question 7

The factors which affect PED

Answer 7

NASBIT

Necessity or luxury

Addictive or habit-forming

Substitutes

Brand loyalty

Proportion of Income

Time

Question 8

Elastic demand and total revenue

Answer 8

If price increases, quantity demanded will decrease by a larger %, so overall total revenue will decrease.

Question 9

Inelastic demand and total revenue

Answer 9

If price increases, quantity demanded will decrease but by a smaller %, so overall total revenue will increase.

Question 10

Unitary elastic demand and total revenue

Answer 10

Whether price increases or decreases, total revenue will not change at all