Price elasticity
- Created by: katier1234
- Created on: 10-11-19 14:39
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- Price Elasticity of Demand
- This measures the responsiveness of demand for a product following a change in price
- Equation: percentage change in quantity demanded / percentage change in price
- PED- 0
- perfectly inelastic
- this means that a price change has no effect on demand
- Total revenue falls because price falls but demand stays the same
- this means that a price change has no effect on demand
- perfectly inelastic
- PED- between 0 and 1
- price inelastic demand
- this means that demand is relatively unresponsive to a change in price
- Total revenue falls. more customers but paying a proportionately lower price
- this means that demand is relatively unresponsive to a change in price
- price inelastic demand
- PED- 1
- Unitary price elasticity of demand
- this means that a change in price equals the same proportionate change in demand
- Total revenue stays the same
- this means that a change in price equals the same proportionate change in demand
- Unitary price elasticity of demand
- PED- above 1
- price elastic demand
- A fall in price means demand rises by proportionality more than the price cut
- Total revenue rises
- A fall in price means demand rises by proportionality more than the price cut
- price elastic demand
- PED- infinity
- perfectly elastic demand
- A fall in price equals an infinite level of demand
- Huge increase in total revenue
- A fall in price equals an infinite level of demand
- perfectly elastic demand
- The more elastic it is the easier it is to be substituted whereas when there is a change in price with little affect this could be due to there not being many substitutes for that product
- Factors affecting PED
- Substitutes- if there are many substitutes it will be elastic however if there are a few substitutes the PED will be inelastic
- In the short run time period PED will be inelastic however in the long run time period PED will be elastic
- %of income- goods which only account for a small amount of our income will have an inelastic demand curve
- Consumer ignorance- short time period if the price rises PED is inelastic as customers will be unaware of the changes. in the long run it will be more PED elastic
- Habit forming goods- such as cigarettes and alcohol will have an inelastic demand curve
- This measures the responsiveness of demand for a product following a change in price
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