PED

• Price elasticity of demand measures the responsiveness of demand to a change in price
• What happens to demand when the price of a product increases by 20% if PED is elastic?

  Demand decreases significantly
• If a product has a PED of 0.5, it is considered price inelastic.
• PED is calculated by dividing the percentage change in quantity demanded by the percentage change in price
• What is the percentage change in quantity demanded if it falls from 1,000 units to 800 units?

  20% decrease
• If the price of a product increases from £4 to £5, the percentage change in price is 25%
• Match the PED value with its elasticity type:

  PED > 1 ↔️ Elastic

  PED < 1 ↔️ Inelastic

  PED = 1 ↔️ Unitary
• If PED is exactly 1, the percentage change in price and demand are equal.
• If a product is price elastic, increasing its price will lead to a decrease in total revenue
• What is the effect of a price increase on demand for a product with inelastic PED?

  Demand decreases less than price
• Products with strong brand loyalty tend to have inelastic demand.
• Products with many substitutes are likely to have elastic demand
• Give an example of a product with elastic demand.

  Bread
• Consumers who are habitual users of a product are likely to have inelastic demand
• A product with inelastic demand can have its price increased without a significant drop in demand.
• What is the primary purpose of calculating PED for a business?

  To inform pricing decisions