Price elasticity of demand 1.2.4

Question 1

What does PED stand for?

Answer 1

Price elasticity of demand.

Question 2

What is PED?

Answer 2

Is a measure of how responsive demand is to a change in price.

Question 3

What type of relationship is there between price and demand?

Answer 3

Inverse.

Question 4

If price increases by 10% and demand falls by 13% is it elastic or inelastic and why?

Answer 4

Elastic as the fall in demand is greater than the fall in price.

Question 5

What is elastic demand?

Answer 5

There’s a substantial change in quantity demand when another economic factor changes.

Question 6

What is inelastic demand?

Answer 6

There’s a slight or no change in quantity demanded of the good or service when anther economic factor changed.

Question 7

What is the PED equation?

Answer 7

% change in quantity demanded/ % change in price

Question 8

As price goes up demand goes ____?

Answer 8

Down

Question 9

As price goes down demand goes ____ ?

Answer 9

Up

Question 10

In business it is assumed that the PED will always be ________?

Answer 10

Negative i.e. price and demand will always move in the opposite direction.

Question 11

If PED is between 0 and -1 then?

Answer 11

Demand is price inelastic.

Question 12

If PED is less than -1 then?

Answer 12

Demand is price elastic

Question 13

What are some Factors influencing PED?

Answer 13

The availability of substitutes
The price of competitor goods
Time
Branding
Income
Nature of the good (Luxury or Necessity).

Question 14

If PED is elastic and you RAISE the selling price, Sales revenue will?

Answer 14

Decrease

Question 15

If PED is elastic and you LOWER the selling price, Sales revenue will?

Answer 15

Increase

Question 16

If PED is inelastic and you RAISE the selling price, Sales revenue will?

Answer 16

Increase

Question 17

If PED is inelastic and you LOWER the selling price, Sales revenue will?

Answer 17

Decrease

Question 18

Why is it difficult to forecast PED?

Answer 18

Because of the many changing factors that affect demand, it can be hard to know if the degree of elasticity measured in the past will be the same today or in the future. The extent to which demand for a product changes when consumers’ real incomes change.