Price Elasticity of Demand

Question 1

What is price elasticity of demand?

Answer 1

PED- responsiveness in demand for 🚘- due to change in its price

Question 2

What is price elastic demand?

Answer 2

Demand is said to be price elastic when a change in price causes a proportionately larger change in demand

Question 3

What is price inelastic demand?

Answer 3

Demand is said to be price inelastic when a change in price causes a proportionately smaller change in demand

Question 4

How do you calculate the price elasticity of demand?

Answer 4

PED= % change in quantity demanded of good A/% change in price of good A

Question 5

What is unique about all PED values?

Answer 5

They are always negative

Question 6

State what the PED values say about the elasticity of the good

Answer 6

Less than -1= Elastic
Between 0 & -1= Inelastic 
Equal to -1= Unitary/Unit elasticity
Equal to 0= Perfectly Inelastic
PED infinite ♾= Perfectly Elastic

Question 7

What are the determinants/conditions of Price Elasticity of Demand:

Answer 7

1) Number of substitutes- ⬆️ substitutes = ⬆️ price elasticity of demand- ⬆️ alternatives encourage switching
2) Necessity/Luxury- if product necessity then demand = ⬆️ price inelastic- people require product no matter the price
If product luxury then demand = price elastic- people ✖️ need product … can live without it if price ⬆️
3) Addictiveness 🚬 -⬆️ addictive product = ⬆️ price inelastic demand- need product to fulfil addiction
4) Time ⏰- time allows consumers to find alternatives … ⬆️⏰ = ⬆️ price elastic demand
5) Proportion of income spent on the good- ⬆️ proportion of income = ⬆️ price elastic- can not afford any price increases
6) Brand image🥤- strong brand image e.g. Coca Cola 🥤 or Levi 👖 = ⬆️ price inelastic- consumers willing to pay a premium 💵 price