the responsiveness of quantity demanded to the change in price
What's the formula for PED
this
define total revenue
the total amount of money earned by all firms by selling the total quantity of a product in a market in a given time period TR= P*Q
define total expenditure
the total amount of money spent by consumers in buying the total quantity of a product in a market in a given time period
Why is PED negative
shows there's an inverse relationship between price and Qd
What value indicates something is fairly elastic
when PED > 1
what does it mean if something is price is fairly elastic
consumers are more sensitive to price change
what does it mean if something is price is fairly inelastic
consumers are less sensitive to the price change
what's the value if something is fairly inelastic
between 0-1
what is meant when something is unit elastic
where the decrease/increase in price is equal to the decrease/increase in demand
whats the value if something is unit elastic
PED =1
what's the value if something is perfectly elastic
PED= infinite
How does time period affect PED
The decision making to purchase goods or service, SR- inelastic and LR-elastic
How do substitutes affect PED
The more substitutes, the more elastic good. Whereas the the less subsitutes, the more inelastic good
How does the percentage of income impact PED
The smaller percentage of income, the more inelastic good as it takes up a smaller amount of income, meaning it isn't worth as much as a more expensive good
Why can PED be difficult to implement when making pricing decisons
Its difficult and expensive method to carry out
Price is not the only factor affecting a consumers decision when purchasing a good at a particular time
PED for a good can change in time- complements of products (Apple Ecosystem)
Why can PED be an ineffective measure to compare people
PED isn't the same for any two people given in different demographics, locations and degree of necessity
How can firms use PED to increase or decrease prices
It allows them to predict changes in demand
How can firms Price discriminate?
Using PEDdata from consumers they can change prices
How are taxes altered by the government
Through PED data, they can alter things such as corporation tax