PED and YED (1.2.4/1.2.5)

Question 1

What is Price Elasticity of demand?

Answer 1

Price elasticity of Demand is the responsiveness of price increase on the quantity demanded of a good.

Question 2

What is the formula for PED?

Answer 2

PED=%Change in QD/ %Change of P (Que before you Pee)

Question 3

If PED is greater than 1 is it Elastic or Inelastic?

Answer 3

Elastic

Question 4

If PED is less than 1 is it Elastic or Inelastic?

Answer 4

Inelastic

Question 5

What is the formula for % Change?

Answer 5

% Change= ((New-Old)/Old)x100

Question 6

What happens to QD and P when PED is Elastic?

Answer 6

If price increases by 10%, QD will fall by 20% because people wont want to buy the increased price products.

Question 7

What happens to QD and P when PED is Inelastic?

Answer 7

If price increases by 10%, QD will fall by 5% because people will still want to buy the increased price products but there is a smaller change in fall in quantity.

Question 8

What should you do to the price of the product if your Price is Elastic?

Answer 8

You should increase your price to maximize Total Revenue

Question 9

What should you do to the price of the product if your Price is Inelastic?

Answer 9

Raise your price to maximize Total revenue

Question 10

What are the Factors that Affect PED? (9 Factotrs)

Answer 10

-Availability of the Substitutes
-% Income spent on Product
-Type of Product
-Durability of Product
-Sustainability of Product
-Health Benefits of Product
-Brand Loyalty
-Whether its a trend
-Need or Want

Question 11

What is Income Elasticity of Demand?

Answer 11

Income elasticity of Demand is the responsiveness of Income change on the quantity demanded of a good.

Question 12

What are the Three Types of Goods?

Answer 12

Normal Good, Luxury Good and Inferior Good

Question 13

What happens when Income increases to Sales of Normal Goods?

Answer 13

As Income increases Normal Goods will see an increase in QD as we buy a little more of these products.

Question 14

What happens when Income increases to Sales of Luxury Goods?

Answer 14

When Income increases Luxury Goods will see an increase in sales as the increased income will mean people have more to spend on luxury items.

Question 15

What happens when Income increases to Sales of Inferior Goods?

Answer 15

When Income increases Inferior Goods will see a decrease in QD as we switch to higher quality, better items.

Question 16

What is the Formula for YED?

Answer 16

YED= %Change QD/ %Change Y