PED

• what is price elasticity of demand?


  measures how much demand changes in response to a change in price
• what is the equation for PED?


  PED = (% change in quantity demanded) / (% change in price)
• what is price elastic demand?


  when price increases the demand will fall.
• what PED do price elastic demand goods have?


  <-1
• what is price inelastic demand?


  demand will not change that much in relation to price
• what PED does an inelastic good have?


  between 0 and -1
• what factors affect PED?

  • availability and closeness of substitutes
  • addictive/habit forming products
  • type of product (necessity or luxury)
  • branding
  • time period
  • income
• what does this graph show?

  price elastic demand

  
• what does this graph show?

  price inelastic demand

  
• price elastic products will...

  fall in revenue, if price is increased

  rise in revenue, if price is decreased
• price inelastic products will...


  rise in revenue, if price is increased

  fall in revenue, if price is decreased
• benefits of PED?

  • helps make pricing decisions
  • help planning (materials, staff)
  • deciding to pass cost increases onto customers
  • when to reduce PED
• drawbacks of PED?

  • difficult to accurately predict
  • changes over time