Price Elasticity Of Demand Flashcards
1
Q
Law of demand?
A
Increase in price = decrease in demand (vice versa)
2
Q
What does PED measure?
A
The responsiveness of demand to changes in price
(By how much)
3
Q
PED formula?
A
% change in quantity demanded DIVIDED BY % change in price
4
Q
ELASTIC?
A
= when change in quantity demanded is greater than change in price
(Sensitive)
5
Q
INELASTIC?
A
= when change in quantity demanded is smaller than change in price
(Not very sensitive)
6
Q
Why is PED useful?
A
Managers can predict the impact of price changes on quantity demanded
7
Q
Issues with PED?
A
-extremely difficult to calculate
(External factors are changing: income, economy & weather)
-approx estimate will aid mangers
