Price Elasticity of Demand

These flashcards cover key concepts related to Price Elasticity of Demand, including definitions, calculations, significance, and factors influencing demand.

Price Elasticity of Demand (PED)

The responsiveness of demand to a change in price.

Elastic Demand

A situation where a change in price results in a greater change in demand.

Inelastic Demand

A situation where a change in price results in a proportionately smaller change in demand.

Factors influencing Price Elasticity of Demand

Factors such as necessity, substitutes, brand strength, and habit that affect how demand responds to price changes.

Calculation of PED

PED = Percentage change in Quantity Demanded / Percentage change in Price.

Significance of PED to businesses

Understanding PED helps businesses determine pricing strategies to maximize revenue.

Total Revenue Relationship with PED

If demand is price elastic, increasing prices will decrease total revenue; if inelastic, increasing prices will increase total revenue.

Graph of Elastic Demand Curve

A curve that shows larger changes in quantity demanded as a result of price changes.

Graph of Inelastic Demand Curve

A curve that shows smaller changes in quantity demanded as a result of price changes.

Quantitative Skills in Business

Basic mathematical skills like calculating ratios, percentages, and interpreting graphical data needed in business contexts.

Percentage Change Formula

Formula to calculate percentage change: (New - Old) / Old x 100.

Revenue Calculation Formula

Revenue = Price x Quantity.

Necessity in Demand

The idea that more necessary products tend to have inelastic demand.

Substitutes in Demand

Products with many alternatives, leading to more elastic demand.

Brand Loyalty in Demand

Strong brand loyalty leads to more inelastic demand for products.

Habit and Inelastic Demand

Products consumed out of habit tend to have inelastic demand.

Dynamic Nature of PED

PED can change due to economic cycles, consumer preferences, and competitive actions.

Example of PED in Practice

Calculating the PED for Coca Cola when increasing prices and analyzing the change in sales.