IB Business Management 4.5 Price Elasticity of Demand HL

What does a PED value of -2 indicate?

• Demand is inelastic

• Demand is elastic

• Demand is perfectly inelastic

• Demand is unitary elastic

If PED is -0.5, demand is considered:

• Perfectly elastic

• Inelastic

• Elastic

• Unrelated to price

When demand is inelastic and price increases, what happens to total revenue?

• It falls

• It stays the same

• It increases

• It becomes zero

If a firm reduces the price of a product with elastic demand, revenue will:

• Stay the same

• Increase

• Decrease

• Become unpredictable

A PED value of -1 means:

• Price changes have no effect on quantity demanded

• Revenue remains unchanged after a price change

• Revenue will always increase

• Demand is perfectly elastic

One key determinant of PED is:

• The number of suppliers in the market

• The availability of substitutes

• The inflation rate

• The brand’s logo design

Products with many close substitutes tend to have:

• Inelastic demand

• Perfectly inelastic demand

• Elastic demand

• No demand

Necessities typically have what kind of PED?

• Perfectly elastic

• Unitary

• Elastic

• Inelastic

What effect does brand loyalty have on PED?

• It makes demand more elastic

• It reduces the price elasticity of demand

• It increases demand elasticity

• It eliminates the need for pricing strategies

Why is PED important for pricing decisions?

• It tells the business how much profit it will make

• It shows how price affects market share

• It helps predict how revenue will change with price changes

• It reflects production costs