a) Price elasticity of demand

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9 Terms

1
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  • define the law of demand

  • price of a good or service increases → quantity demanded decreases

2
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  • define price elasticity of demand

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

3
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  • state the formula for PED

  • PED = (%ΔQD) / (%ΔP)

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

4
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  • 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)

5
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  • 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

6
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  • 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

7
New cards

  • 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

8
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  • 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)

9
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  • 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

  • product price in proportion to income

    • high proportion = elastic PED

  • time period

    • longer time period = elastic PED