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11 Cards in this Set
- Front
- Back
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Price elasticity of Demand
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a measure of the magnitude by which consumers alter the quantity of some product they purchase in response to a change in the price of that product.
The more price-elastic demand,the more responsive the consumers are to price changes |
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PED Equation
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%∆QD/%∆P
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Elastic Demand
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ed > 1
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Unit-elastic demand
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ed = 1
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Inelastic demand
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0 < ed < 1
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Perfectly Elastic
Demand Curve |
A horizontal demand
curve indicating that consumers can and Will purchase all they want at one price |
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Perfectly Inelastic
Demand Curve |
A vertical demand
curve indicating that there is no change in the quantity demanded as the price changes |
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Why is Price Elasticity of Demand defined in percentage terms?
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To avoid ignoring the fact that different type of goods/service have different values
ex: comparing apples to apples VS. comparing apples to oranges |
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3 Determinants of PED
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-The existence of substitutes
-The importance of the product in the consumer’s total budget -The Time Period Under Consideration |
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Total Revenue
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Price of good or service X Quantity sold
Inelastic demand = TR▲ as price▲ Inelastic demand = TR▼ as price▲ Unit-elastic demand = No ∆ |
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Price Discrimination
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charging different customers different prices for the same product
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