PED

• 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 relatively inelastic goods?

  If price increases there is increased revenue

  if price decreases there is decreased revenue
• what is the effect on revenue if the good is relatively elastic?

  as price increases there is decreased revenue

  as price decreases there is increased revenue