Price Elasticity of Demand

Question 1

what is the reason for price elasticity of demand

Answer 1

every product is different for a different audience, hencforth it can react differently to a change in price, some products wont increase much in demand if prices falls, where others would increase sharply, we use elasticity to calculate this

Question 2

what is price elasticity of demand

Answer 2

the responsiveness of demand to a change in price

Question 3

what determines the price elasticity on a graph

Answer 3

the gradient of the curve

Question 4

what is inelastic demand

Answer 4

where change in price results in a proportionally lower change in demand

Question 5

what is elastic demand

Answer 5

where change in price results in a greater change in demand

Question 6

what is the formula for calculating the price elasticity of demand

Answer 6

PED = Percentage change in quantity demand / percentage change in price

Question 7

if the elasticity of demand in less than one, what is it referred to as

Answer 7

price inelastic

Question 8

if the elasticity of demand in greater than one, what is it referred to as

Answer 8

price elastic

Question 9

if PED = 0 its reffered to as?

Answer 9

perfectly inelastic, change in price will result in 0 change in demand)

Question 10

if PED is infinity its reffered to as?

Answer 10

perfectly elastic, change in price will result in no demand

Question 11

if PED is exactly -1

Answer 11

then the price is unitary elastic, change in price will be proportionally equal to the change in demand

Question 12

what are the factors that effect PED

Answer 12

availability of substitutes
degree of necessity
proportion of income spent on a product
time

Question 13

how do availability of substitutes effect PED

Answer 13

if there are lots of substitutes available for a product, the product tends to be elastic, such as if price for stawverry jam rises, then consumers may switch to apircotm, so price will result in a high change in demand, on the contrary products with little to no substitutes will be inelastic

Question 14

how does the degree of neccessity affect the PED

Answer 14

goods that are considered essential such as food and fuel, consumers cannot lower the amount purchased considerably since they are essential, so consumers may not react heavily to price changes compared to goods with are not neccesary such as new iphones

Question 15

how does the proportion of income spent on a product affect the PED

Answer 15

it may be argued that products which are non frequen one off purchases that cost a lot of a consumers income, say a tv worth 1000, consumers are ready to wait a few months to see if the price drops, so these products demand would react heavily to price changes and are said to be elastic

Question 16

how does time ffect PED

Answer 16

short term goods have inelastic demand since it has hard for consumers to find subsitutes in such short time, however its vice versa for long term goods