PED

• what is Price elasticity of demand


  measures the responsiveness of demand after a change in the goods own price
• what is the formula for PED


  % change in quantity demanded/% change in price
• what does it mean when the demand is elastic


  the demand is responsive to changes in price
• what does it mean for the demand to be inelastic


  demand is not very responsive to the changes in price
• why will all the figures of PED have a minus sign


  downward sloping demand will have a negative coefficient with PED, since changes in price and QD usually move in opposite directions
• what are the characteristics of PED

  • levels of competition
  • availability of information
  • degree of necessity / luxury goods
  • proportion of income spent on commodities
  • price
  • availibility of substitutes
  • brand loyalty
  • cost of substituting between different products
  • price of the product in relation to total income
• 3 characteristics of inelastic demand


  • competition
  • substitute products
  • consumers income or budget
• 3 characteristics of elastic demand


  • higher percentage of income
  • competitive markets
  • many substitutes : many alternatives make demand sensitive to price
• explain the coefficients of PED


  • if PED = 0 then it is perfectly inelastic - so demand does not change when prices change
  • if PED is between 0 and 1 = demand is inelastic
  • if PED = 1 then demand is the same at unit elastic
  • if PED is more than 1 then demand is elastic
• explain what happens when a good has elastic demand


  a reduction in price will increase revenue whilst a increase in price will reduce the firms total revenue
• explain what happens when a good has inelastic demand


  a reduction in price will reduce the firms revenue whilst a increase in will increase the firms revenue
• what is dynamic pricing


  changing pricings of goods and services based on the demand of the good e.g., a stock of a good may fall so they up the prices in order to benefit from the cost of production