Price elasticity of demand or PED measures the responsiveness of the quantity demanded for a product or service towards a change in price
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If a product or service is elastic there is...
A big response to a small change in price
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If a product or service is inelastic there is...
A small response to a large change in price
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Why do we need to know about PED in your industry?
Because of the following reasons: 1) Substitutes, 2) Necessities, 3) Time and 4) Habit
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Why are substitutes a factor?
Because if there are a higher number of substitutes, it is more likely that a good will be elastic as customers will be able to find alternatives easily
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Why are necessities a factor?
Because demand tends to be inelastic for these as even if the price increased, people would still continue buying them
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Why is time a factor?
Over time, goods become more elastic as customers have more time to adjust to price changes
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Why is habit a factor?
If the product or service is part of a regular routine, demand will usually be inelastic
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PED helps us to predict?
How customers will respond to price changes and allows us to set pricing strategies to increase our overall revenue
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PED also helps with price discrimination - why?
Because PED allows us to determine if elasticities are different for markets, we would be able to charge less in one market but more in another. Thereby allowing us to maintain our revenue
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PED and Tax?
Understanding PED helps us understand if we are able to pass the burden of tax on to the customer
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What is Income elasticity of demand (YED)?
Measures how quantity demanded changes when a consumers income changes
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The higher the income elasticity...
The more sensitive demand will be to the change in income
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A high-income elasticity of demand means that...
When income goes up, consumers purchase more
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Why is YED useful?
Helps the business to decide what kinds of training to offer and how change in income will affect demand for our service
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Categories of goods: Normal
Demand increase as consumer's income increases
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Categories of goods: Luxury
Income elastic as consumer demand is more responsive when there is a change in income
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YED helps a business to...
Carry out demand forecasting and decide what kinds of service to offer and how changes in customers' income levels will affect this demand
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YED helps a business to...
Determine prices of trainings and whether we should increase or decrease prices according to changes in income levels
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If incomes are falling and YED is positive...
A reduction in price would help to compensate a reduction in demand
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Knowing the consumer response would...
Help us determine our marketing strategy and know which industry or companies to target or focus our marketing efforts on
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Cross price elasticity of demand (XED)...
Measures the responsiveness of the demand for one good to the change in price of another
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3 types of price elasticity but the most relevant one to my industry is...
Substitutes
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Why do we need to understand XED?
Helps us identify how many other competitors share the same space in the eyes of our consumers and gives hints about close substitutes in the industry and helps us determine whether we should avoid making dramatic price changes
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Other cards in this set
Card 2
Front
If a product or service is elastic there is...
Back
A big response to a small change in price
Card 3
Front
If a product or service is inelastic there is...
Back
Card 4
Front
Why do we need to know about PED in your industry?
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