Price Elasticity of Demand

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  • Created by: amieb12
  • Created on: 06-03-18 11:26
Brand Strength
Products with strong brand loyalty and reputation tend to be price inelastic.
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Necessity
The more necessary a products, the more demand there will be, tends to be inelastic.
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Habit
Products that are demanded for products consumed as a matter of habit tends to be price inelastic.
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Availability of substitutes
Demand for products that have lots of alternatives (substitutes) tends to be price elastic.
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What is Price Elasticity of Demand (PED)
Price Elasticity of Demand measures the extent to which the quantity of a product demanded changes in response to a change in price.
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Elasticity
Measures the responsiveness of demands to a change in a relevant variable - such as price.
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The formula for calculating the co-efficient of demand
% Change in Quantity Demanded divided by % Change in Price.
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What does it mean if Ped is between 0 and 1?
Price inelastic, change in demand is less than the change in price.
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What does it mean if Ped is 1?
Unitary price elasticity, change in demand = change in price.
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What does it mean if Ped is ˃1?
Price elastic, change in demand is more than the change in price, a change in price will cause a larger change in demand. Overall revenues would increase with a price cut. Overall revenues would fall with a price increase.
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Other cards in this set

Card 2

Front

Necessity

Back

The more necessary a products, the more demand there will be, tends to be inelastic.

Card 3

Front

Habit

Back

Preview of the front of card 3

Card 4

Front

Availability of substitutes

Back

Preview of the front of card 4

Card 5

Front

What is Price Elasticity of Demand (PED)

Back

Preview of the front of card 5
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