Price Elasticity of Demand

Question 1

What is the definition of price elasticity of demand?

Answer 1

Price elasticity of demand is a ratio that shows how much demand for a product changes when the price of that product changes

Question 2

Give the formula for PED

Answer 2

% change in quantity demanded/ % change in price

Question 3

What is meant by ‘price elastic demand’?

Answer 3

a measurement of the change in the demand for a product as a result of a change in its price

Question 4

What values would constitute ‘price elastic demand’?

Answer 4

• p > 1 = elastic demand
• p < 1 = inelastic demand
• p = 1 = unitary elastic demand

Question 5

What is meant by ‘perfectly price elastic demand’?

Answer 5

when the demand for the product is entirely dependent on the price of the product

Question 6

What values would constitute ‘perfectly elastic demand’?

Answer 6

If the price elasticity of demand is bigger than 1

Question 7

What is meant by ‘price inelastic demand’?

Answer 7

Inelastic demand is when a buyer’s demand for a product does not change as much as its change in price

Question 8

What values would constitute ‘price inelastic demand’?

Answer 8

If the price elasticity of demand is smaller than 1

Question 9

What is meant by ‘unit elastic demand’?

Answer 9

a situation in which the percentage change in the quantity demanded of a good or service is equal to the percentage change in the price of the good or service

Question 10

What value would constitute ‘unit elastic demand’?

Answer 10

Price elasticity of demand is equal to 1

Question 11

Give 4 factors which influence the PED of a product

Answer 11

• availability of substitutes
• if the good is a luxury or a necessity
• the proportion of income spent on the good
• how much time has elapsed since the time the price changed.