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406289
Price elasticity of demand
Description
A Levels Economics (Microeconomics) Mind Map on Price elasticity of demand, created by lucyhacking on 01/12/2013.
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economics
microeconomics
economics
microeconomics
a levels
Mind Map by
lucyhacking
, updated more than 1 year ago
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Created by
lucyhacking
over 10 years ago
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Resource summary
Price elasticity of demand
Demand+price inverse relationship
Price is high=demand is low
Price is low=demand is high
Percentage change= Change/Original x 100
PED= % Change in Quantity Demanded / % Change in price
Elastic (anything above 1) - makes it sensitive to a change in price
Unit elastic (1) - change in price will be met with an equal change in demand
Inelastic (below 1) - change in demand will be smaller than the change in price
Determinants of price elasticity
Necessity or luxury
Necessity= inelastic=not that sensitive to change in price
Luxury=elastic
Proportion of income
Higher the proportion of income the more price elastic the product will be
eg 1p sweet and a flat, 1p to 2p=100% and £100,000 to £200,000=100%
Brand loyalty
The stronger the brand loyalty the less price elastic the product will be
Information
If customers are unable to make price comparisons between different competitors products less elastic
eg 2 products=product A more expensive but customers dont know that B is cheaper so carry on buying product A
When info is poor product is price inelastic
Substitutes
The more close substitutes you have the more price elastic/ sensitive to price your product will be
If there are no substitutes demand will be price inelastic
Implications
If product is price elastic and you want to increase revenue, cut your prices
If product is price inelastic and you want to increase revenue then increase your prices
Graphs
Elastic
Shallow slope
Inelastic
Steep slope
Smaller increase in demand
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