Price elasticity of demand Flashcards
What is the price elasticity of demand
How much quantity demanded will respond given a change in price
How do we calculate PED
%change in quantity demanded/%change in price
When you calculate PED,you always get a … number,this is because …
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1.Negative
2.There is an inverse relationship between quantity demanded and price
When PED is between -1 and -infinity,the product is price …
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relatively elastic
When PED is between 0 and -1,the product is …
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relatively inelastic
When PED is -1,we call it … …
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Unitary elasticity
When PED is -infinity,we call it … …
perfectly elastic
When PED is 0,we call it … …
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perfectly inelastic
What shape is a perfectly inelastic demand curve
it is a perfectly vertical line going straight up
What shape is a perfectly elastic demand curve
A perfectly straight horizontal line going straight across
When a product is price elastic,what does it suggest about consumers when price changes
Consumers are quite responsive to a change in price
When a product is price inelastic,what does it suggest about consumers when price changes
Consumers are not very responsive when price changes
What products tend to be price elastic
mobile phones,luxury clothing,fizzy drinks,wine
What products tend to be price inelastic
cigarettes,alcohol,petrol,water
What factors affect PED
-necessity
-addiction and habit
-availability of substitutes (more substitutes,more elastic)
-proportion of income
-brand loyalty (more loyal customers,more inelastic)
-time period
