Price Elasticity Of Demand(PED) Flashcards
1
Q
PED
A
The response of demand to a change in price
2
Q
Price elastic
A
Consumers are very responsive to price changes
3
Q
Price inelastic
A
Consumers are not very responsive to price changes
4
Q
Formula for PED
A
% change in QD/ % change in price
5
Q
Determinants of PED
A
- Availability of substitutes- The more there are the more responsive to price consumers will be(elastic)
- Proportion of income spent on them-The lower it is, the less responsive to price consumers will be(inelastic)
6
Q
What influences how responsive demand is to price?
A
- Addictive or not?- if the product is highly addictive price does not matter
- Can purchase be put off?-If consumers can put off buying the product until a later date, they may do if price rises
- Is it a necessity- if consumers need the product then price is irrelevant
7
Q
Values for PED
A
0-1=Price inelastic demand
1= Unit elastic
>1= Price elastic
ALWAYS NEGATIVE
