Price Elasticity of Demand

Question 1

Formula

Answer 1

percentage change in quantity demanded / percentage change in price

Question 2

Definition of PED

Answer 2

The responsiveness of demand to a change in price

Question 3

3 exceptions where elasticity doesnt change along curve

Answer 3

Perfectly elastic (horizontal line) - PED = infinity
Perfectly inelastic (vertical line) - PED = 0
Unitary elasticity (rectangular hyperbola) - PED = 1

Question 4

When is a good elastic

Answer 4

PED greater than 1

Question 5

When is a good inelastic

Answer 5

PED less than 1

Question 6

Determinants of price elasticity of demand

Answer 6

Substitutes - more substitutes / closer substitutes makes an increase in elasticity

Percentage of income - low = inelastic, high = elastic

Luxury/necessity - necessity = inelastic, luxury = elastic

Addictive - more addictive = more elastic

Time period - more elastic in long run

Question 7

Total revenue formula

Answer 7

TE = price x quantity purchased = TR

Question 8

When will total revenue rise

Answer 8

When percentage change in price is higher than percentage change in demand (PED less than 1 so inelastic)

Question 9

When will total revenue fall

Answer 9

When percentage change in price is lower than pc in demand (PED is greater than 1 so elastic)