1.2

• PED >1 meaning


  • price elastic e.g. luxury products such as curs, holidays and branded goods.
  • Demand is more responsive to a change in price, the % change in quantity demanded is more proportional to the % chnage in price.
• PED between 0&1 meaning

  • price inelastic e.g. necessities like bread, milk and fuel and addictive products e.g cigarettes.
  • demand is less responsive to a change in price, the % change in quantity demanded is less proportional to % chnage in price.
• Inelastic demand


  • means if the price is changed, the demand stays the same.
  • there are fue substitutes with inelastic demand.
• Elastic demand


  • products and services that have elastic demand are responsive to a change in price, if the business puts their prices up, then the demand will decrease.
• Availablity of substitutes


  • lots of substitutes means demand for products are more senstitive to price so the product is more price elastic.
• Frequency of purchase


  • consumers who purchase frequently will be sensitive to price changes, price elastic.
• Skimming pricing


  • products that are unique or first to market can have high prices being charged at intro or launch.
  • this is so the business can maximise revenue and profits before substitutes appear on the market.
  • the business will need to set high prices to recoup research and development
• YED >0 (positive value)

  • necessity, consumer demand increases when income increases.
• YED <0 (negative value)

  • inferior goods, demand decreases when income increases.
• YED >1 


  • luxury goods, an increase in income causes an increase in demand.
• What factors lead to a change in demand?

  • changes in the prices of substitutes and complementary goods#
  • changes in consumer income
  • fashion, tastes and trends
  • advertisement and branding
  • demographics
  • external shocks
  • seasonality
• demand defintion

  the amount of a good that consumers are will and able to buy at a given price
• Non price factors leading to changes in demand

  • price of substitutes
  • alternative brands
  • change in consumer tastes
  • marketing, advertisement and branding
  • time of year
  • weather and climate
  • external shocks
• Non price determinants of supply

  • cost of production
  • intro of new technology
  • indirect taxes
  • government subsidies, this is a payment form the government to encourage more suppliers to enter the market and to supply more.
  • external shocks