Price Elasticity of Demand (PED)

Question 1

PED definition

Answer 1

Measures the responsiveness of quantity demanded given a change in price

Question 2

PED equation

Answer 2

percentage change Qd / percentage change P

Question 3

What is the value of PED always going to be

Answer 3

Negative
Due to Law of Demand
If price falls, demand increases and positive / negative = negative
If price rises, demand decreases and negative / positive = negative

Question 4

PED value between -1 and infinity

Answer 4

Demand is price elastic

Question 5

PED value that equals -1

Answer 5

Demand is unit price elastic

Question 6

PED value between -1 and 0

Answer 6

Demand is price inelastic

Question 7

PED value that equals infinity

Answer 7

Demand is perfectly price elastic

Question 8

PED value that equals zero

Answer 8

Demand is perfectly price inelastic

Question 9

Factors determining PED

Answer 9

S - substitutes (number of)
P - percentage of income
L - luxury / necessity
A - addictive
T - time period

Question 10

Inelastic Demand
e.g. Oil

Answer 10

Few Substitutes
Small percentage of income
Necessity
Not addictive
(elastic is opposite)

Question 11

Total Revenue equation

Answer 11

TR = price x quantity