Price Elasticity of Demand

These flashcards cover key concepts related to price elasticity of demand, including definitions, determinants, and implications for decision making.

Price Elasticity of Demand (PED)

Measures the degree of responsiveness of the quantity demanded of a product following a change in its price.

Price Inelastic Demand

Describes demand for a product that is unresponsive to changes in price, usually due to a lack of substitutes.

Price Elastic Demand

Describes demand for a product that is responsive to changes in price, usually due to the availability of substitutes.

Determinants of Price Elasticity of Demand

Factors influencing PED, including substitutes, income, necessity, habits, advertising, and time.

Perfectly Price Inelastic Demand

Occurs when the price elasticity of demand (PED) is equal to 0, indicating no change in quantity demanded regardless of price changes.

Perfectly Price Elastic Demand

Occurs when the PED is infinite, indicating any price change leads to zero quantity demanded.

Unitary Price Elasticity

Occurs when the percentage change in the quantity demanded is equal to the percentage change in price, resulting in no change in total revenue.

Total Revenue

The total amount of money generated from sales, calculated as price multiplied by quantity sold.

Price Discrimination

The practice of charging different customers different prices for essentially the same product based on differences in their price elasticity of demand.

Formula for calculating PED

PED = Percentage change in quantity demanded / Percentage change in price, expressed as %ΔQD / %ΔP.

Implication of PED for producers

Producers can adjust pricing strategies based on the price elasticity of demand for their products to maximize sales revenue.