406289
Description
Mind Map by lucyhacking, updated more than 1 year ago
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Created by lucyhacking
almost 11 years ago
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Price elasticity of demand
- Demand+price inverse relationship
- Price is high=demand is low
- Price is low=demand is high
- Price is high=demand is low
- Percentage change= Change/Original x 100
- PED= % Change in Quantity Demanded / % Change in price
- 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
- Necessity= inelastic=not that sensitive to change in price
- 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%
- eg 1p sweet and a flat, 1p to 2p=100% and £100,000 to £200,000=100%
- Higher the proportion of income the more price elastic the product will be
- Brand loyalty
- The stronger the brand loyalty the less price elastic
the product will be
- 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
- 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
- If customers are unable to make price comparisons between
different competitors products less elastic
- 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
- The more close substitutes you have the more price elastic/ sensitive to price
your product will be
- Necessity or luxury
- 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
- If product is price elastic and
you want to increase revenue,
cut your prices
- Graphs
- Elastic
- Shallow slope
- Shallow slope
- Inelastic
- Steep slope
- Smaller increase in demand
- Smaller increase in demand
- Steep slope
- Elastic
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