PED and YED Flashcards
What does PED tell us?
The sensitivity of demand for their products to price changes.
How is PED calculated?
% change in quantity demanded / % change in price
How many decimal places must PED be shown to?
1 decimal place.
How would inelastic demand be shown in calculation results?
Between 0 and 1
What does a result of 0 PED tell us?
Perfectly inelastic (demand does not change at all with price change)
What does a result of 1 PED tell us?
This is unit elastic (% change in demand = % change in price)
What does a result of PED over 1 tell us?
The higher the number, the more elastic. % change in demand will be greater than % change in price.
What is unit elastic?
Proportions of % change in demand and % change in price are equal.
What is perfect inelastic?
The quantity will stay the same, regardless of the price.
What is perfect elastic?
At any price above P1 demand is 0.
At any price below P1, demand is ‘infinitely’ large.
What are 2 problems with PED?
It is based on past data.
Elasticity may change over a products lifecycle.
What are 3 ways a company can reduce the effects of PED?
Increase product differentiation/USP.
Predatory/destroyer pricing.
Horizontal integration - two firms merging may remove rivalry.
Price fixing.
What is the calculation for YED?
% change in quantity demanded / % chanhe in income.
What type of YED do normal goods have?
Positive YED, so as income rises, more is demanded
Which YED do normal necessities have?
Between 0 and 1. Demand is rising less proportionally to income.
