Price Elasticity of Demand PED

Question 1

What is PED?

Answer 1

Measures the responsiveness of quantity demanded given a change in price

Question 2

PED Equation

Answer 2

PED= %ΔQD/%ΔP

Question 3

Is PED positive or negative?

Answer 3

ALWAYS Negative (law of demand - price goes up, quantity demanded goes down vice versa)

Question 4

How to calculate %Δ?

Answer 4

Difference/Original X 100

Question 5

Price Inelastic

Answer 5

<1

Question 6

Price Elastic

Answer 6

> 1

Question 7

Perfectly price inelastic

Answer 7

0

Question 8

Perfectly price elastic

Answer 8

∞

Question 9

Unitary price elastic

Answer 9

1

Question 10

What does being price elastic mean?

Answer 10

Demand increases proportionately more to a change in price

Question 11

What does being price inelastic mean?

Answer 11

Demand changes proportionately less to a change in price

Question 12

Determinants of price elasticity of demand

Answer 12

SPLAT

Substitutes (no.)
Percentage of income
Luxury / Necessity
Addictive / Habit forming
Time period

Question 13

When Demand is price ELASTIC, what happens to REVENUE with an INCREASE in price?

Answer 13

Price increase, Revenue Decrease

Question 14

When Demand is price ELASTIC, what happens to REVENUE with an DECREASE in price?

Answer 14

Price decrease, Revenue increase

Question 15

When Demand is price INELASTIC, what happens to REVENUE with an INCREASE in price?

Answer 15

Price increase, Revenue increase

Question 16

When Demand is price INELASTIC, what happens to REVENUE with an DECREASE in price?

Answer 16

Price decrease, Revenue decrease