Price elasticity of demand

• What does price elasticity of demand measure?

  Responsiveness of quantity demanded to price changes
• Why is understanding price elasticity of demand essential for marketing?

  It helps in making effective pricing strategies
• What is the formula for calculating the coefficient of elasticity of demand?

  Percentage change in quantity demanded divided by percentage change in price
• If a product's price decreases from £5 to £4, what is the percentage change in price?

  -20%
• If Co. A sold 500 units last year and 10,000 this year, what is the percentage change in quantity demanded?

  1,900%
• What does a price elasticity of demand (PED) of -4 indicate about a product?

  The product is very elastic
• Why do we usually not include the minus sign in PED calculations?

  We focus on the coefficient of elasticity
• How can businesses use PED estimates?

  To predict changes in total revenue and expenditure
• What is price discrimination in relation to PED?

  Charging different prices to different market segments
• What happens to total revenue if a firm raises its price and PED is inelastic?

  Total revenue increases
• What does it mean if PED is between 0 and -1?

  Demand is inelastic
• What does a PED of -1 indicate?

  Demand is unit elastic
• What does a PED less than -1 signify?

  Demand is elastic
• How do close substitutes affect PED?

  More substitutes make demand more elastic
• How does necessity versus luxury affect PED?

  Necessities tend to have inelastic demand
• What is habitual consumption's effect on PED?

  It makes consumers less sensitive to price changes
• How can PED predict total revenues based on price changes?

  It indicates how demand will respond to price changes
• What happens to total revenue if PED is -0.4 and the firm raises price by 30%?

  Total revenue increases
• What happens to total revenue if PED is -4.0 and the firm lowers price by 15%?

  Total revenue increases
• What are potential issues with the concept of price elasticity of demand?

  It is just an estimate and can change
• Why is it important for management to monitor PED?

  To understand factors influencing demand