Price elasticity of demand - PED Flashcards

1
Q

PED

A

The responsiveness of a change in demand to a change in price

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2
Q

PED impact on total revenue

A

If a good has inelastic demand, a firm can raise its price, and quantity sold will not fall significantly. Increasing total revenue.
If a good has elastic demand and the firm raises its price, quantity sold will fall. This will reduce total revenue.

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3
Q

Formula

A

PED= % change in quantity demanded / % change in price

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4
Q

Price elastic good

A

Very responsive to a change in price = a change in price leads to an even bigger change in demand - PED > 1

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5
Q

Price inelastic good

A

Relatively unresponsive to a change in price - PED < 1

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6
Q

Unitary elastic good

A

A change in demand is equal to a change in price - PED = 1

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7
Q

Perfectly elastic good

A

Demand does not change when the price changes - PED = 0

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8
Q

Perfectly inelastic good

A

Demand falls to zero when price changes - PED = infinity

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