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 Quantitydemand/ % 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