3.1.3.4 Price elasticity

• What does price elasticity measure?

  Responsiveness to price changes
• Elastic demand occurs when the PED value is greater than 1
• What is the PED value if a luxury car's price increases by 10% and the quantity demanded decreases by 20%?

  -2
• An example of a good with elastic demand is a luxury car.
• The PED formula helps businesses understand how price adjustments will affect their sales volume.

  True
• The PED value for elastic demand is greater than 1.
• The PED value for unitary elastic demand is -1
• Elastic demand occurs when the PED value is > 1
• What is the PED value for inelastic demand?

  < 1
• Match the elasticity type with an example:

  Elastic ↔️ Luxury goods

  Inelastic ↔️ Essential medicines

  Unitary Elastic ↔️ Standard books
• The formula for price elasticity of demand is PED = % Change in Quantity Demanded / % Change in Price
• The price elasticity of demand formula is PED = (% Change in Quantity Demanded) / (% Change in Price
• If the absolute value of PED is greater than 1, demand is elastic.


  True
• In the example, demand is elastic because |PED| > 1.

  True
• What is an example of a good with elastic demand?

  Luxury cars
• Standard books are an example of goods with unitary elastic demand.

  True
• The formula for price elasticity of demand is PED = % Change in Quantity Demanded / % Change in Price


  True
• Match the elasticity type with its characteristic:

  Elastic ↔️ Quantity changes significantly

  Inelastic ↔️ Quantity changes little

  Unitary elastic ↔️ Quantity changes proportionally
• A PED value of -1 indicates unitary elastic demand.


  True
• What is the PED value for inelastic demand?

  <1
• Steps to calculate PED using the mid-point method

  1️⃣ Calculate % change in quantity

  2️⃣ Calculate % change in price

  3️⃣ Apply the PED formula
• If the price of a good increases and the quantity demanded remains unchanged, the demand is perfectly inelastic.

  True
• What are the three main types of price elasticity of demand?

  Elastic, inelastic, unitary elastic
• Elastic demand means quantity demanded changes significantly with price changes.


  True
• Unitary elastic demand occurs when the PED value is = 1
• What does price elasticity measure?

  Responsiveness to price changes
• A PED of -1 indicates unitary elastic demand.

  True
• What does the mid-point method avoid in calculating PED?

  Ambiguity
• What is the value of PED in the example provided?

  -1.22
• The three main types of price elasticity of demand are elastic, inelastic, and unitary
• What is an example of a good with inelastic demand?

  Essential goods like medicines
• Why do goods with close substitutes have more elastic demand?

  Consumers can switch easily
• Demand tends to be more elastic in the long run.


  True
• Match the elasticity type with its impact on total revenue:

  Elastic ↔️ Total revenue decreases with price increase

  Inelastic ↔️ Total revenue increases with price increase

  Unitary Elastic ↔️ Total revenue remains constant with price changes
• What happens to total revenue if demand is inelastic and price increases by 10%?

  Total revenue increases
• What is an example of a non-essential service with elastic demand?

  Cinema tickets
• Order the factors affecting price elasticity of demand from most to least direct impact:

  1️⃣ Availability of substitutes

  2️⃣ Necessity of the good

  3️⃣ Proportion of income spent on the good

  4️⃣ Time period
• What is the impact on demand elasticity if a good makes up a large proportion of a consumer's income?

  Demand becomes more elastic
• Total revenue is calculated as price multiplied by quantity
• What happens to total revenue if demand is elastic and price increases by 10%?

  Total revenue decreases