1.2.4 A Level Business Price Elasticity of Demand (PED)

What is the formula for calculating price elasticity of demand (PED)?

• % Change in Price / % Change in Quantity Demanded

• % Change in Quantity Demanded / % Change in Price

• % Change in Quantity Supplied / % Change in Price

• % Change in Total Revenue / % Change in Price

If the price of a product decreases by 10% and quantity demanded increases by 20%, what is the PED?

• -2.0

• -0.5

• 2.0

• 0.5

If PED is calculated as -0.8, how would demand be described?

• Perfectly elastic

• Elastic

• Inelastic

• Unitary elastic

A price increase of 5% leads to a 15% drop in quantity demanded. What is the PED?

• -3.0

• -0.33

• -1.5

• -0.15

A PED value of -2 indicates that demand is:

• Inelastic

• Elastic

• Perfectly inelastic

• Unitary elastic

When PED is inelastic, what can businesses typically do to price without significantly reducing demand?

• Increase it

• Decrease it

• Keep it constant

• Both a and b

Which of the following is NOT a factor influencing PED?

• Availability of substitutes

• Necessity versus luxury

• Price of complementary goods

• Proportion of income spent on the good

Which type of product is likely to have inelastic demand?

• Designer handbags

• Water

• Luxury cars

• Airline tickets

The demand for a product is more elastic when:

• The product is a necessity

• There are few substitutes

• The product has many substitutes

• The price is a small proportion of income

A good with a significant proportion of income spent on it is likely to have:

• Elastic demand

• Inelastic demand

• Perfectly inelastic demand

• Unitary demand