PRICE ELASTICITY DEMAND

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  • Created by: _Holly98
  • Created on: 15-12-15 11:51

PED

MEASURES RESPONSIVNESS OF DEMAND TO CHANGE IN PRICE

PRICE INCREASES - DEMAND DECREASES

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PED

PRICE INCREASES DEMAND DECREAESSE

BY WHAT PROPORTION

COMPARES % CHANGE IN DEMAND BIGGER OR SMALLER THAN % CHANGE IN PRICE

RESULTING ANSWER VALUE

ALWAYS NEGATIVE 

BIGGER VALUE PED BIGGER CHANGE DEMAND 

PED OF 2 MEANS % CHANGE IN DEMAND IS TWICE AS MUCH AS IN PRICE 

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FORMULAS

DIFFERENCE / ORIGINAL X 100 = % CHANGE

PED

% CHANGE QUANTITY / % CHANGE PRICE

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ELASTIC & INELASTIC

ELASTIC = PED GREATED 1 

DEMAND RESPONSIVE CHANGE IN PRICE

INELASTIC = PED LESS 2

DEMAND UNRESPONSUVE CHANGE PRICE 

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DETERMINES ACTUAL PED

EXACT PED VARIOUS FACTORS

TIME

ALTERNATIVES

LUXURIES / NECESSITIES

BRAND LOYALTY / USPS/ DIFFERENTIATION 

LOW PROPORTION DISPOSABL EINCOME VS HIGH PROPORTION 

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PED MATTER?

FIRMS PREDICT PRICE CHANGE AFFECT SALES & REVENUE

IMPORTANT MARKETING PLANNING 

PREDICT IMPACT ON STOCKS 

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PROBLEMS PED

UNRELIABLE - HARD CALUCLATE / ONLY ESTIMATE / ASSUME ONLY PRICE CHANGES

PRICE CUTS PROVOKE COMPETITIVE REACTION 

OTHERTHINGS MAY CHANGE: CONSUMERS TASTES / TECHNOLOGY / LEGISLATION / ECONOMY / COMPETITORS 

CONSUMERS REACT DIFFERENCLY PRICE INCREASES THAN DECREASES 

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