price elasticity of demand

Question 1

what is the price elasticity of demand?

Answer 1

when the change in price causes a change in the quantity of demand

Question 2

how to calculate PED?

Answer 2

PED = % change in demand / % change in price

Question 3

what are elastic goods?

Answer 3

goods that are sensitive to changes in price, so their demand changes a lot, even if there is a small change in price

Question 4

what is an example of an elastic good?

Answer 4

luxury goods, e.g. holidays

Question 5

what PED value will an elastic good have?

Answer 5

less than -1

Question 6

what will the value of PEDs always be?

Answer 6

always negative

Question 7

what would the demand curve for an elastic good look like?

Answer 7

shallow gradient

Question 8

what would the demand curve for a perfectly elastic good look like?

Answer 8

horizontal line

Question 9

what is an inelastic good?

Answer 9

goods that are not sensitive to changes in price, so a large change in price will only cause a small change in demand

Question 10

examples of inelastic goods are?

Answer 10

essentials (petrol, food) and addictive goods (tobacco, alcohol, vapes)

Question 11

what is the PED value of an inelastic good?

Answer 11

0 to -1

Question 12

what would the demand curve for an inelastic good look like?

Answer 12

steep gradient

Question 13

what would the demand curve look like for a perfectly inelastic good look like?

Answer 13

vertical line

Question 14

how do you calculate revenue?

Answer 14

revenue = price x quantity

Question 15

what are the benefits of knowing the PED value of a good for businesses?

Answer 15

they can set a price which will maximise profits

Question 16

what 6 factors influence PEDs?

Answer 16

• habits
• brand loyalty
• availability of substitutes
• proportion of income spent on those goods
• consumer income
• necessity