Price Elasticity of Demand (PED) Maths and determinants

Price elasticity of demand measures

• The responsiveness of price to a change in demand

• The responsiveness of demand to a change in income

• The responsiveness of demand to a change in price

• The responsiveness of demand to a change in supply

Inelastic demand curves are illustrated as

• Flat

• Horizontal

• Positively sloped

• Steep

Goods with elastic demand are likely to

• Have lots of close substitutes

• Be addictive in nature

• Take up a small proportion of a consumer's regular spending

• Have a high degree of customer loyalty

A firm can increase its revenue by raising its price if

• Demand is price inelastic

• Demand is price elastic

• There are a large number of close substitutes

• The degree of brand loyalty is low

Goods which take a high proportion of consumers' income tend to be..

• Price inelastic

• Price elastic

• I don't know! Sorry.

• Unit elastic

Addictive goods tend to have a demand which is..

• price inelastic

• price elastic

• unit elastic

• I don't know! Sorry

This question has multiple correct answers. Which of these are the correct formulas to calculate PED?

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Hisham’s Hat shop increases the price of their premium hats by 10%, resulting in a decrease in sales by 5%. What is the price elasticity of demand to 2 d.p?

• 0.50

• -0.50

• 2

• -2

Answer explanation

negative 5% divided by 10%

Hisham’s Hat shop increases the price of their premium hats by 10%, resulting in a decrease in sales by 5%. The PED is -0.5. At the new price and quantity, what is the shape of the demand curve?

• Perfectly elastic

• Perfectly inelastic

• elastic

• inelastic

Answer explanation

Inelastic between 0 and 1

Hisham’s Hat shop increases the price of their premium hats by 10%, resulting in a decrease in sales by 5%. The PED is -0.5. What is the interpretation of the PED?

• A 1% increase in price leads to a greater than proportional change in the quantity demanded.

• A 1% increase in price leads to a less than proportional change in the quantity demanded.

• A 1% increase in price leads to a proportional change in the quantity demanded.

• I don't understand! Sorry

Answer explanation

A 1% increase in price leads to a less than proportional change in the quantity demanded of 0.5%