Price elasticity of demand

Demand+price inverse relationship
1. Price is high=demand is low
2. Price is low=demand is high
Percentage change= Change/Original x 100
1. 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
1. Necessity or luxury
  1. Necessity= inelastic=not that sensitive to change in price
  2. Luxury=elastic
2. Proportion of income
  1. Higher the proportion of income the more price elastic the product will be
    1. eg 1p sweet and a flat, 1p to 2p=100% and £100,000 to £200,000=100%
3. Brand loyalty
  1. The stronger the brand loyalty the less price elastic the product will be
4. Information
  1. If customers are unable to make price comparisons between different competitors products less elastic
    1. eg 2 products=product A more expensive but customers dont know that B is cheaper so carry on buying product A
  2. When info is poor product is price inelastic
5. Substitutes
  1. The more close substitutes you have the more price elastic/ sensitive to price your product will be
  2. If there are no substitutes demand will be price inelastic
Implications
1. If product is price elastic and you want to increase revenue, cut your prices
2. If product is price inelastic and you want to increase revenue then increase your prices
Graphs
1. Elastic
  1. Shallow slope
2. Inelastic
  1. Steep slope
    1. Smaller increase in demand

Siguiente

Price elasticity of demand

Descripción

Resumen del Recurso

Similar

	Creado por lucyhacking hace casi 11 años