Price elasticity of Demand

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9 Terms

1
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What does the Price Elasticity of Demand (PED) measure?

PED measures the responsiveness of demand after a change in the good’s own price.

2
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What is the formula for calculating Price Elasticity of Demand (PED)?

PED = % change in quantity demanded / % change in price.

3
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What does a PED of 0 indicate?

Demand is perfectly inelastic; quantity demanded does not change regardless of price changes.

4
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What does a PED between 0 and -1 signify?

Demand is inelastic; a percentage change in price results in a smaller percentage change in quantity demanded.

5
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What is the implication of a PED of -1?

Demand is unit elastic; a percentage change in price results in an equal percentage change in quantity demanded.

6
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What does a PED greater than -1 indicate?

Demand is elastic; a percentage change in price leads to a larger percentage change in quantity demanded.

7
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How does inelastic demand affect total revenue when price changes?

Total revenue rises as price increases.

8
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What happens to total revenue when demand is unit elastic?

Total revenue remains constant as price changes.

9
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What is the consumer sensitivity characteristic of elastic demand?

Consumers are sensitive to price changes.