a) Price elasticity of demand

• define the law of demand

• price increases → quantity demanded decreases

• define price elasticity of demand

• how sensitive the change in quantity demanded is to the change in price

• state the formula for PED

• PED = (%ΔQD) / (%ΔP)

• price elasticity of demand = percentage change in quantity demanded / percentage change in price

• state the type of elasticity if PED = 0

• define this type of elasticity

• state what the gradient of this type of elasticity would look like

• perfectly inelastic

• change in price → no change in quantity demanded

• gradient = 0 (vertical)

• state the type of elasticity if -1 < PED < 0

• define this type of elasticity

• state what the gradient of this type of elasticity would look like

• relatively inelastic

• change in price → smaller change in quantity demanded

• gradient < -1

• state the type of elasticity if PED = -1

• define this type of elasticity

• state what the gradient of this type of elasticity would look like

• unitary elastic

• change in price → equal change in quantity demanded

• gradient = -1

• state the type of elasticity if PED < -1

• define this type of elasticity

• state what the gradient of this type of elasticity would look like

• relatively elastic

• change in price → larger change in quantity demanded

• -1 < gradient < 0

• state the type of elasticity if PED = -infinite

• define this type of elasticity

• state what the gradient of this type of elasticity would look like

• perfectly elastic

• change in price → zero quantity demanded

• gradient = 0 (horizontal)

• state the determinants of PED

• state how a high value of these determinants effects PED

• substitute availability

  • high availability = elastic PED

• product addictiveness

  • high addictiveness = inelastic PED

• price change in proportion to income

  • high proportion = elastic PED

• time period

  • longer time period = elastic PED