Unit 3.1 PED Flashcards
Define normal good.
Good for which demand increases In response to an increase in consumer income.
Deine inferior good.
- Good for which demand falls
- In response to an increase in consumer income.
Define PED.
Measure of the responsiveness of the quantity of a product demanded to changes in its price.
What tends to increase with economic growth?
Consumer income.
What is the equation of PED
percentage change of quantity demanded over percentage change of price
How do you find the percentage change of anything
Difference between two numbers/orignial x100
What is PED>1 mean and curve type
Demand is elastic
Curve is more horizontal
PED<1 mean and curve type
Demand is price inelastic
Curve is more vertical
PED 0 and curve type
Demand is perfectly price inelastic
Curve is vertical
PED infinity and curve type
Price is perfectly elastic
Curve is horizontal
PED 1 and curve type
Price is unit price elastic
This means that for every 1 per cent change in price quantity demanded changes by 1%
Acronym to see if PED is elastic or inelastic
S-ubstitutes (the more substitutes the more elastic and vice versa)
P-ercentage of income (greater the percentage of income a price change takes the more elastic (e.g. car 10% increase in price is a lot of money, hence people go to competition) (lower the percentage of income price change takes the more price inelasti
L-uxury/necessity (Luxury goods are more elastic, while necessity is inelastic
A-ddictive/habit forming (Inelastic if addictive)
T-ime period (short term inelastic as consumers dont have time to look up and adapt to substitues)
Talk about total revenue when demand is elastic during a price increase and decrease
Price increase: significant decrease in TR
Price decrease: significant increase in TR
Talk about total revenue when demand is inelastic during a price increase and decrease
Price increase: significant increase in TR
Price decrease: significant decrease in TR
