Theme 1 - 1.2.4 - PED - 1.2.5 - YED Flashcards
Whats the formula for PED ?
% Change in Quantity demanded / % change in price
We have to make another calculation to find the % change in quantity demanded etc
Whats the change in price formula ( perc difference )
Price new - Price old / Price old x 100
PED is always …
A minus
What does elastic demand mean ?
Demand for the product is sensitive to a change in price
What happens if the PED score is more than 1 ?
Then that means that the product has an elastic demand
What does inelastic demand mean ?
It means that there will be very little change in demand with a change in price
What happens if the PED value is between 0 and 1 ?
Then that means that the product has an inelastic demand
What happens to the demand when a market has a large number of available substitutes ?
This means that the demand is more sensitive to price meaning that little tweaks in the price can effect the demand a lot - so if there are a lot of substitutes then the demand for the product is sensitive to price as consumers can just easily switch to another product as it heads a lot of substitutes - meaning that the product is more price elastic
What does frequency of purchase mean for the demand for a product ?
Products that are bought frequently by consumers tend to be very elastic - sensitive to price meaning that if the price goes up for a product that you frequently buy then you would switch to an alternative and this is because if you always buy fairy liquid for e..g and it goes up in price then you would switch to by Sainsbury’s liquid and this is because you buy the other liquid in knowledge that you will come back another week and the fairy liquid might go back to the normal price
How is the demand for necessities different for demand for other products ?
Necessities have lower price elasticises - so more inelastic as consumers must purchase the product despite price changes
For example petrol is a necessity which means that consumers need to keep buying petrol even if the price increases - which means that the product is very price inelastic
What is YED ?
Income elasticity of demand
Whats the YED formula ?
% change in quantity demanded / % change in income
Whats the YED value for inferior, normal and luxury ?
Inferior - YED value below 0 - so its negative
Normal - YED value between 0 and 1
Luxury - YED value bigger than 1
What is YED used for ?
It is a calculation used by businesses to estimate how demand will change in response to changes in income - As consumer income change - up or down - so do demands
So a business can measure how much demand for a product will be affected by a change in a consumers income
What are normal ( necessity ) goods ?
Normal goods are those for which demand increase when income increases
A good is normal when consumers demand more as their income increases
The YED value for normal products is between 0 and 1 - for example the YED value for Kelloggs cornflakes might be 0.4