PED

Cards (18)

  • what is PED?
    measures the responsiveness of quantity demanded (Qd) of a product to a change in price
  • what is the equation for PED?
    PED= (%change in Qd)/(%change in P)
  • what is the figure for something that is perfectly elastic?
    -infinity
  • what is the range of figures of something that is relatively elastic?
    -1>-infinity
  • what is the figure of something that has unitary elasticity?
    -1
  • what is the range of figure to show something is relatively ineastic?
    0>-1
  • what is the figure to show a product is perfectly inelastic?
    0
  • if a product is PED elastic, what is the explaination?
    If something is price elastic then consumers are very sensitive to price changes. a change in price leads to a more than proportionate change in quantity demanded.
  • is a product is PED inelastic, what is the explanation?
    if an item is price inelastic then consumers are NOT very sensitive to price changes. a change in price leads to a less than proportionate change on quantity demanded
  • if a product has unitary elasticity, what is the explanation?
    if an item is price unitary, then a change in price leads to the same % change in quantity demanded. a change in price leads to a proportionate change in demand
  • what are the determinants of PED?
    Proportion of income
    Addictiveness
    Necessity
    Time
    Substitutes
    (PANTS)
  • what does Proportion of income mean?
    if the price is a low proportion of you income - then PED is inelastic - therefore, consumers are not sensitive to price changes
    if the price is a high proportion of income - then PED elastic - therefore, customers are sensitive to price changes
  • what does Addictiveness mean?
    If you are addicted to something then you will be PED inelastic - because you want that item you are addicted regardless of cost
  • what does Necessity mean?
    If something is a necessity then it is PED inelastic - because consumers need that item regardless of its cost
  • what does Time mean?
    Do you have time to shop?
    YES = PED elastic
    NO = PED inelastic
  • what does substitutes mean?

    are alternatives/substitutes available?
    YES = PED elastic
    NO = PED inelastic
  • what is the effect of revenue of inelastic goods?
    If price increases there is increased revenue
  • what is the effect on revenue if the good is elastic?
    as price increases there is decreased revenue