Price Elasticity Of Demand Flashcards
1
Q
PED definition
A
Measures the responsiveness of demand following a change in price of a G/S
2
Q
What PED means:
0
0-1
1
1+
A
0: perfectly inelastic
0-1: Inelastic
1: Unit elastic
1+: Elastic
3
Q
Determinants of PES (7)
A
Proportion of Income
Necessity or Luxury
Definition
Brand Loyalty
Amount of substitutes
Time period
Habit forming
4
Q
Why firms look at PED (3)
A
• Helps plan production: if they have enough stock to cope with demand change
• Workforce planning: do they need to hire more staff to keep up with demand
• Helps determine if the price change is worth it
5
Q
What is the equation for PED
A
% Change in Quantity Demanded
——————————
% Change in Price
