Price elasticity of demand

Question 1

What is PED?

Answer 1

measures the responsiveness of demand after a change in the goods own price.

Question 2

what is the calculation for PED?

Answer 2

% change in quantity demanded/ % change in price.

queen/ people

Question 3

What is perfectly inelastic demand?

Answer 3

if PED=0
demand does not change when price changes

graph is vertical and looks like I

Question 4

What is relatively inelastic demand?

Answer 4

If PED is between 0 and 1
% change in demand is smaller than the percentage change in price

graph is vertical on a slight slant

Question 5

What is unitary elastic demand?

Answer 5

if PED= 1
% change in demand is the same as the % change in price

graph is curved

Question 6

what is relatively elastic demand?

Answer 6

if PED > 1
demand responds more than proportionally to a change in price

graph is horizontal but on a slant

Question 7

What is perfectly elastic demand?

Answer 7

If PED= infinite
any price increase- quantity demand falls to zero

graph horizontal and looks like and E

Question 8

Describe what happens to a relatively elastic demand curve and revenue when you change price?

Answer 8

increase price= decrease revenue

decrease price= increase revenue

Question 9

Describe what happens to a relatively inelastic demand curve and revenue when you change price?

Answer 9

increase price= increase revenue

decrease price= decrease revenue

Question 10

Factors affecting PED

Answer 10

• availability and closeness of substitutes
• cost of switching between products
• degree of necessity or wether good is a luxury
• proportion of income spent on the good
• whether good is subject to habitual consumption
• time period allowed following a price change
• peak and off-peak demand
• width of market definition

Question 11

What is revenue?

Answer 11

The money generated from sales of a good or service.