Price inelastic demand

• What does price elasticity of demand (PED) measure?

  PED measures the responsiveness of demand to a change in price.
• What is the formula for calculating PED?

  PED = % change in quantity demanded / % change in price.
• What are the different PED coefficients and their relevance to business?

  • 0: Perfectly inelastic - Business can charge any price.
  • 0 < 1 (less than 1): Price inelastic - Raise price, demand decreases, total revenue increases.
  • 1: Constant elasticity - Price change does not affect total revenue.
  • 1 > ∞ (more than one) : Price elastic - Lower price, demand increases, total revenue increases.
  • ∞: Perfectly elastic - Price increase leads to zero demand.
• What does perfectly inelastic demand imply?

  Demand remains constant regardless of price changes.
• Give an example of a perfectly inelastic product.

  Fuel is an example, as demand remains constant despite price changes.
• What does price inelastic demand indicate?

  Quantity demanded changes by a lesser amount when price changes.
• What should a firm do if a product is price inelastic?

  A firm should raise the price to increase total revenue.
• What does price elastic demand imply?

  Quantity demanded changes by a greater amount when price changes.
• What should a firm do if a product is price elastic?

  A firm should lower the price to increase total revenue.
• What does a perfectly elastic product indicate?

  Any price increase leads to zero demand.
• How does PED influence total expenditure?

  If PED is elastic (>1), a price rise causes total expenditure to fall.
• What happens to total expenditure if PED is inelastic (<1)?

  A price rise causes total expenditure to rise.
• What does total expenditure depend on?

  Total expenditure depends on the PED of the good or service.
• How to calculate PED


  Step 1. Change in demand/orignal demand x 100

  Step 2. Change in price/original price x 100

  Step 3. Step 1/ Step 2
• What is a griffen good


  A griffen good is a low income non luxury product that has the same properties as an inferior product
• What does elasticity theory examine?

  It examines sensitivity of one variable to another
• What is an elasticity coefficient?

  It measures the response of one variable to another
• What symbols are used in elasticity theory?

  + for positive, - for negative numbers
• How do you calculate the percentage change in price?

  New price - old price / old price x 100
• How do you calculate the percentage change in quantity demanded?

  New quantity demanded - old quantity demanded / old quantity demanded x 100
• What does price elasticity of demand (PED) measure?

  It measures responsiveness of demand to price change
• What is the formula for PED?

  PED = % change in quantity demanded / % change in price
• What are the different PED coefficient categories and their implications for business?

  • 0: Perfectly inelastic (charge any price)
  • 0 < 1: Price inelastic (raise price, total revenue increases)
  • 1: Constant elasticity (no change in total revenue)
  • 1 > PED > ∞: Price elastic (lower price, total revenue increases)
  • ∞: Perfectly elastic (no demand if price increases)
• What does perfectly inelastic demand imply?

  Demand remains constant regardless of price changes
• Give an example of a perfectly inelastic product.

  Fuel, as demand stays constant
• What does price inelastic demand indicate?

  Demand changes by a lesser amount with price changes
• What should a firm do if a product is price inelastic?

  Raise price to increase sales revenue
• What does price elastic demand imply?

  Demand changes significantly with price changes
• What should a firm do if a product is price elastic?

  Lower price to increase sales revenue
• What does a perfectly elastic product mean?

  Demand becomes infinite with price changes
• How does PED influence total expenditure?

  If PED > 1, price rise causes total expenditure to fall
• What is the significance of PED for businesses?

  It helps determine pricing strategies
• How do you interpret PED values?

  Values > 1 indicate elastic demand
• What factors influence price elasticity of demand?

  • Availability of substitutes: More substitutes = more elastic
  • Frequency of purchase: Frequent purchases = more elastic
  • Necessities: Lower elasticity, must buy regardless of price
  • Luxury goods: Higher elasticity, sensitive to price changes
• How does the availability of substitutes affect demand elasticity?

  More substitutes make demand more price sensitive
• How does frequency of purchase influence demand elasticity?

  Frequent purchases make demand more elastic
• Why do necessities have lower price elasticities?

  Consumers must purchase them despite price changes
• How do luxury goods affect demand elasticity?

  Luxury goods are more sensitive to price changes
• What is competitive pricing?

  Pricing similar to close competitors
• What is skimming pricing?

  High initial price for unique products