PED

• What is the focus of the discussion on price elasticity of demand (PED) in this material?

  The focus is on how it works, its formula, and its usefulness.
• What does the law of demand state?

  If the price of a product increases, the demand will fall, and if the price falls, the demand will increase.
• Why is price elasticity of demand (PED) always a negative number?

  Because of the negative correlation between price and demand as stated by the law of demand.
• What does price elasticity of demand measure?

  It measures the responsiveness of demand to changes in price.
• How is the formula for price elasticity of demand expressed?

  Price elasticity of demand (PED) is calculated as the percentage change in quantity demanded divided by the percentage change in price.
• What mnemonic can help remember the order of the variables in the PED formula?

  The mnemonic is "QPR," where Q stands for quantity demanded and P stands for price.
• If a business reduces its prices by 10% and the quantity demanded increases by 40%, what is the price elasticity of demand?

  The price elasticity of demand is $-4$.
• What does a price elasticity of demand coefficient greater than 1 indicate?

  It indicates that demand is elastic.
• What does it mean if demand is inelastic?


  It means that the percentage change in quantity demanded is smaller than the percentage change in price.
• If prices increase by 20% and quantity demanded falls by 4%, what is the price elasticity of demand?

  The price elasticity of demand is $-0.2$.
• How does price elasticity of demand relate to revenue?

  Revenue is affected by price elasticity; if demand is elastic, increasing prices will decrease revenue.
• What happens to revenue when prices are increased under inelastic demand?

  Revenue will increase if prices are increased under inelastic demand.
• What are the key factors that make a product more price inelastic?

  • Establishing brand loyalty
  • Having fewer rivals
  • Being inexpensive relative to consumer income
  • Situations where someone else is paying for the product
  • Limited time to consider a purchase
• What are some challenges in calculating price elasticity of demand?

  External factors such as changes in income, economic conditions, and weather can affect the accuracy of calculations.
• Why is it important for managers to understand price elasticity of demand?

  Understanding PED helps managers predict the impact of price changes on quantity demanded and revenue.
• What is the relationship between price elasticity of demand and revenue when demand is elastic?

  When demand is elastic, increasing prices will decrease revenue.
• What is the relationship between price elasticity of demand and revenue when demand is inelastic?

  When demand is inelastic, increasing prices will increase revenue.