Price elasticity of demand

Question 1

What is price elasticity of demand?

Answer 1

Price elasticity of demand is a measure of the responsiveness of demand to a change in price

Question 2

What is the equation for price elasticity of demand (hint: Q before you P)

Answer 2

%change in quantity demand / %change in price

(%change= (actual change (new-old) / original amount) x 100)

Question 3

What are price inelastic goods?

Answer 3

Goods that have a less than proportional change in demand compared to the change in price (between 0 and -1) DEMAND WON’T CHANGE A LOT
e.g. water and electricity, cigarettes, cheap products

Question 4

What are price elastic goods?

Answer 4

Goods that have a more than proportional change in demand compared to the change in price (greater than -1) DEMAND WILL CHANGE LOTS
e.g. specific brand items, expensive items, wants

Question 5

What are the factors that affect price elasticity of demand?

Answer 5

• Substitutability
• Percentage of income (how expensive)
• Need or want
• Addictive goods
• Time (whether it is used short or long term)