a) Price elasticity of demand

• the law of demand

• as the price increases, the quantity demanded decreases

• price elasticity of demand

• a measure of how sensitive the change in quantity demanded is to the change in price

• the formula for PED

• PED = (%ΔQD) / (%ΔP)

  • PED = price elasticity of demand

  • %ΔQD = percentage change in quantity

  • %ΔP = percentage change in price

• if PED = 0, the PED is…

• perfectly inelastic

• perfectly inelastic PED

• when a change in the price causes no change in the quantity demanded

• the gradient for a perfectly inelastic PED

• 0 (vertical)

• if -1 < PED < 0, the PED is…

• relatively inelastic

• relatively inelastic PED

• a change in the price causes a smaller change in the quantity demanded

• the gradient for a relatively inelastic PED

• < -1

• if PED = -1, the PED is…

• unitary elastic

• unitary elastic PED

• a change in the price causes an equal change in the quantity demanded

• the gradient for a unitary elastic PED

• -1

• if PED < -1, the PED is…

• relatively elastic

• relatively elastic PED

• a change in the price causes a larger change in the quantity demanded

• the gradient for a relatively elastic PED

• -1 < m < 0

• if PED = -infinity, the PED is…

• perfectly elastic

• perfectly elastic PED

• a change in the price causes no quantity to be demanded

• the gradient for a perfectly elastic PED

• 0 (horizontal)

• the determinants of PED

• the time period

• the substitute availability

• the addictiveness of the product

• the price in proportion to income

• (PED)

• a longer time period creates…

• an elastic PED

• (PED)

• a high substitute availability creates…

• an elastic PED

• (PED)

• a highly addictive product creates…

• an inelastic PED

• (PED)

• a high price in proportion to income creates…

• an elastic PED