Price Elasticity of Demand
- Created by: Cadenza146
- Created on: 24-05-21 10:46
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- Price Elasticity Of Demand
- measures responsiveness of quantity demanded for a product in response to change in price
- % change in quantity demanded / % change in price
- Price Elastic
- PED = more than 1
- Luxury Good
- Chocolate
- Bread
- Luxury Good
- Change in demand is more than the change in price
- overall revenues would increase with a price cut
- fall with a price increase
- PED = more than 1
- Price Inelastic
- PED = less than 1
- Change in demand is less than the change in price
- revenues decrease with a price cut
- increase with a price increase
- Unitary Price Elasticity
- PED = exactly 1
- Change in demand = change in price
- Factors influencing PED
- Brand Strength
- products with strong brand loyalty and reputation tend to be inelastic
- Necessity
- the more necessary the product, the more inelastic
- Habit
- products that are demanded and consumed as a matter of habit tend to be inelastic
- Availability of substitutes
- products with lots of alternatives tend to be elastic
- Time
- in the short-run, price changes have a smaller impact on demand that in the long run
- Brand Strength
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