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Questions and Answers
What does a price elasticity of demand (PED) value of 0 indicate?
What does a price elasticity of demand (PED) value of 0 indicate?
- Quantity demanded responds significantly to price increases.
- Quantity demanded is completely unaffected by price changes. (correct)
- Quantity demanded changes proportionately with price changes.
- Quantity demanded changes less than proportionately to price changes.
Which of the following factors generally makes demand more elastic?
Which of the following factors generally makes demand more elastic?
- Lack of available substitutes.
- Necessity of the good.
- Short time horizon for purchases.
- High percentage of income spent on the good. (correct)
What happens to total revenue if the demand for a good is elastic (PED > 1) and the price is decreased?
What happens to total revenue if the demand for a good is elastic (PED > 1) and the price is decreased?
- Total revenue fluctuates randomly.
- Total revenue decreases.
- Total revenue remains unchanged.
- Total revenue increases. (correct)
Which type of good typically has a price elasticity of demand (PED) greater than 1?
Which type of good typically has a price elasticity of demand (PED) greater than 1?
What characteristic of a demand curve indicates price inelasticity?
What characteristic of a demand curve indicates price inelasticity?
If demand for a good is unitary elastic (PED = 1), what is the relationship between price changes and total revenue?
If demand for a good is unitary elastic (PED = 1), what is the relationship between price changes and total revenue?
How does the availability of substitutes affect price elasticity of demand?
How does the availability of substitutes affect price elasticity of demand?
What does perfect price elasticity (PED = ∞) imply about consumer behavior?
What does perfect price elasticity (PED = ∞) imply about consumer behavior?
What does a steep demand curve indicate about the price elasticity of demand?
What does a steep demand curve indicate about the price elasticity of demand?
Which scenario best demonstrates perfect price inelasticity?
Which scenario best demonstrates perfect price inelasticity?
How does the percentage of income spent on a good influence its price elasticity of demand?
How does the percentage of income spent on a good influence its price elasticity of demand?
What happens to total revenue when demand is inelastic (PED < 1) and the price increases?
What happens to total revenue when demand is inelastic (PED < 1) and the price increases?
Which good are consumers likely to view as more elastic?
Which good are consumers likely to view as more elastic?
If demand is unitary elastic (PED = 1), what effect does a decrease in price have on total revenue?
If demand is unitary elastic (PED = 1), what effect does a decrease in price have on total revenue?
Which of the following factors could lead to increased price elasticity of demand?
Which of the following factors could lead to increased price elasticity of demand?
A product has a price elasticity of demand (PED) greater than 1. What can be inferred?
A product has a price elasticity of demand (PED) greater than 1. What can be inferred?
Flashcards
Price Elasticity of Demand (PED)
Price Elasticity of Demand (PED)
PED measures how responsive quantity demanded is to a price change.
Price Elastic Demand
Price Elastic Demand
A small price change leads to a large quantity change.
Price Inelastic Demand
Price Inelastic Demand
Significant price changes result in little quantity change.
PED = 0
PED = 0
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0 < PED < 1
0 < PED < 1
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PED = 1
PED = 1
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PED > 1
PED > 1
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PED = ∞
PED = ∞
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Price Elasticity of Demand (PED)
Price Elasticity of Demand (PED)
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Elastic Demand (PED > 1)
Elastic Demand (PED > 1)
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Inelastic Demand (0 < PED < 1)
Inelastic Demand (0 < PED < 1)
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Unit Elastic Demand (PED = 1)
Unit Elastic Demand (PED = 1)
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Perfectly Inelastic Demand (PED = 0)
Perfectly Inelastic Demand (PED = 0)
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Perfectly Elastic Demand (PED = ∞)
Perfectly Elastic Demand (PED = ∞)
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Total Revenue Effect (PED)
Total Revenue Effect (PED)
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Factors affecting PED
Factors affecting PED
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Study Notes
Price Elasticity of Demand (PED)
- PED measures how quantity demanded of a good changes with price changes.
- It shows the responsiveness of demand to price fluctuations.
Diagrams for Price Elasticity
- Price Elastic Demand: A shallow (flatter) demand curve shows a large quantity change for a small price change.
- Price Inelastic Demand: A steep demand curve indicates little change in quantity demanded despite price changes.
Numerical Values of PED
- Perfect Price Inelasticity (PED = 0): Quantity demanded is constant, regardless of price (e.g., life-saving medicine).
- Price Inelastic (0 < PED < 1): Quantity demanded changes less than price changes (e.g., basic necessities).
- Unitary Price Elasticity (PED = 1): Quantity demanded changes proportionally to price changes.
- Price Elastic (PED > 1): Quantity demanded changes more than price changes (e.g., luxury goods).
- Perfect Price Elasticity (PED = ∞): Any price increase results in zero demand (e.g., perfectly competitive markets).
Factors Influencing PED
- Substitutes: More substitutes mean higher elasticity. Consumers easily switch if prices rise.
- Degree of Necessity: Necessaries have inelastic demand, luxuries are more elastic.
- Percentage of Income Spent: Goods that consume a larger portion of income are more elastic.
- Time: Demand becomes more elastic over time as consumers find more alternatives.
Total Revenue and PED
- Elastic Demand (PED > 1): Lowering price increases total revenue.
- Inelastic Demand (PED < 1): Lowering price decreases total revenue.
- Unitary Elastic Demand (PED = 1): Total revenue doesn't change with price changes.
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Description
This quiz focuses on the concept of Price Elasticity of Demand (PED), exploring how quantity demanded changes in response to price fluctuations. It includes different types of demand elasticity and illustrates their characteristics through diagrams and numerical values. Test your understanding of how elasticity affects consumer behavior and market dynamics.
