Price elasticity of demand

• • When there is an increase in price, there will be a fall in the quantity demanded and when there is a fall in price there will be an increase in the quantity demanded
• PED= %change in Quantity demand/ % change in price
• price elastic is greater than 1 for example (-1.5) and price inelastic is between 0 and 1 for example (-0.25)
• price inelastic-

  • Necessities such as bread, milk, eggs, and potatoes; fuel; rent; toothpaste, etc.
  • Addictive products such as cigarettes and sugary foods
  • Demand is less responsive to a change in price
• price elastic-

  • Demand is more responsive to a change in priceThe %∆ in QD is more than proportional to the %∆ in P
  • Luxury products such as cars, smart watches, foreign holidays, cinema visits, jewellery, and branded goods
• necessity products like milk are inelastic but if someone switches to similar or competitor products than the demand will be elastic
• brand loyality- if customer are loyal they wont switch even if teh price goes up making the product price less pricr elastic
• the internet makes it easier to find alternatives so this increases price elasticity
• product types tend to be price inelastic and individual brands are price elastic
• The shorter the time period under consideration the more price inelastic the demand for a good or service is likely to be
• If businesses can determine the price elasticity of demand for their products, they can adjust their pricing strategy to maximise their revenue
• If the demand for their products is relatively price inelastic (PED < -1), raising the price will lead to an increase in total revenue. However, lowering the price will lead to a fall in total revenue
• f demand for their products is relatively price elastic (PED > -1), raising the price will lead to a fall in total revenue. However, lowering the price will lead to a rise in total revenue
• A Product that is price elastic will have as shallow demand curve whereas if inelastic thn it has steep demand curve