Price Elasticity of Demand

• What does PED stand for in economics?


  Price Elasticity of Demand
• What does price elasticity of demand measure?


  It measures the responsiveness of quantity demanded to a change in price.
• How is price elasticity of demand calculated?


  It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
• If the price of a product increases by 1.25 and the quantity demanded decreases by 25, what is the PED?


  The PED is $-25/1.25 =$$-20$.
• What does it mean if a product is price inelastic?


  It means that demand for the product does not change much with a change in price.
• Give an example of a price inelastic product.

  Petrol
• What does it mean if a product is price elastic?


  It means that demand for the product changes significantly with a change in price.
• Give an example of a price elastic product.

  Crisps
• What is the formula for calculating PED?


  The formula is $[(new D - old D)/old D] \times 100 =$$\Delta D/\Delta P$ and $[(new P - old P)/old P] \times 100$.
• What does a unitary elastic good indicate?


  A unitary elastic good has a change in demand equal to the change in price.
• If the price of a good increases by 10%, what would be the expected change in demand for a unitary elastic good?


  The expected change in demand would also be 10%.
• What are the factors that affect the price elasticity of demand (PED)?


  • Substitutes: More substitutes lead to more elastic PED.
  • Percentage of income: Higher percentage of income makes PED more elastic.
  • Luxury vs. necessity: Luxuries are more elastic; necessities are inelastic.
  • Addictiveness: More addictive goods are more inelastic.
  • Time period: PED can be more elastic in the short run due to fewer substitutes.
• How do substitutes affect the price elasticity of demand?


  The more substitutes available, the more elastic the PED will be.
• How does the percentage of income spent on a good affect its PED?


  If a good takes a large percentage of income, its PED will be more elastic.
• How do luxury and necessity goods differ in terms of PED?


  Luxury goods are more elastic, while necessity goods are inelastic.
• How does addictiveness influence the price elasticity of demand?


  The more addictive a product is, the more inelastic its demand will be.
• How does the time period affect the price elasticity of demand?


  In the short run, PED may be more elastic due to fewer substitutes, while in the long run, more substitutes may be available.
• What does price elasticity of demand measure?


  How sensitive the quantity demanded is to price changes
• What is the formula for price elasticity of demand?

  $Price Elasticity of Demand =$$\frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Price}}$
• If a 10% price increase leads to a 20% decrease in quantity demanded, what is the price elasticity of demand?


  • 2
• How is price elasticity of demand calculated?


  It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
• What type of elasticity is indicated when the quantity demanded decreases by 15% with a 10% price increase?


  Elastic
• If a clothing store reduces jeans prices by 15% and sees a 25% increase in sales, what is the price elasticity of demand?


  • 1.67