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11 Cards in this Set

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  • Back
Price elasticity of Demand
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
PED Equation
Elastic Demand
ed > 1
Unit-elastic demand
ed = 1
Inelastic demand
0 < ed < 1
Perfectly Elastic
Demand Curve
A horizontal demand
curve indicating that
consumers can and
Will purchase all they
want at one price
Perfectly Inelastic
Demand Curve
A vertical demand
curve indicating that
there is no change in
the quantity
demanded as the
price changes
Why is Price Elasticity of Demand defined in percentage terms?
To avoid ignoring the fact that different type of goods/service have different values

ex: comparing apples to apples VS. comparing apples to oranges
3 Determinants of PED
-The existence of substitutes
-The importance of the product in the consumer’s total budget
-The Time Period Under Consideration
Total Revenue
Price of good or service X Quantity sold

Inelastic demand = TR▲ as

Inelastic demand = TR▼ as

Unit-elastic demand = No ∆
Price Discrimination
charging different customers different prices for the same product