Price elasticity of demand 1.2.4

Question 1

PED formula

Answer 1

PED = %change in demand/%change in price

Question 2

PED >1

Answer 2

• elastic
• demand is more responsive to change in price
• luxury
• price increase = revenue decrease

Question 3

PED between 0 & 1

Answer 3

• inelastic
• demand is less responsive to change in price
• necessity
• price increase = revenue increase

Question 4

Factors influencing price elasticity

Answer 4

• brand loyalty
• availability of substitutes
• proportion of income taken up
• luxury or necessity
• time period