price elasticity of demand

• What happens to quantity demanded when the price of a good changes?

  Quantity demanded will change too
• What is the shape of the demand curve?

  Downward sloping
• What determines how much demand will change with price changes?

  The good itself
• Why might someone still buy bread if its price increases significantly?

  Because bread is a necessity
• How does the demand for a ring change with price increases?

  Demand decreases as it is not a necessity
• What is the definition of price elasticity of demand (PED)?

  Responsiveness of demand to price change
• What is the formula for calculating PED?

  Percentage change in quantity demanded over price
• What does the delta symbol represent in the PED formula?

  Change
• How should PED be treated in calculations?

  PED is always positive
• If the price of a good increases by 100% and quantity demanded decreases by 50%, what is the PED?

  -0.5 (but treated as 0.5)
• How do you calculate percentage change?

  New figure minus old figure over old figure
• What is the percentage change when the price of a chocolate bar increases from £1 to £2?

  100%
• How do you calculate the percentage change in quantity demanded when it increases from 3 to 9?

  200%
• What is the percentage change in price when it falls from £5 to £2.50?

  -50%
• How do you find the PED using percentage changes in quantity and price?

  Percentage change in quantity over percentage change in price
• What is the final PED when quantity demanded increases by 200% and price decreases by 50%?

  4
• What are the key steps to calculate PED?

  1. Identify the percentage change in quantity demanded.
  2. Identify the percentage change in price.
  3. Use the formula: PED = % change in quantity demanded / % change in price.
  4. Remember to treat PED as a positive value.
• What factors influence the price elasticity of demand for a good?

  • Necessity vs. luxury
  • Availability of substitutes
  • Proportion of income spent on the good
  • Time period for adjustment