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Price elasticity of demand (Causes of Low PED (Need, Strong Brand Image,…
Price elasticity of demand
% Change in Quantity Demanded %Change in Price
How Qdemanded reacts to a change in Price
Always (-)
Perfectly Inelastic: Quantity demand doesn't change at all with a chnage in price It is 0
Inelastic: The % Change in price is grater than the %Change in QDemanded. It is 0<1
Unitary Elastic: Same % Change in QD and in Price. It is 1
Elastic: The change in Price is smaller than % Change i n price
Infinitelly Price elastic: % Change in Price is at least 8 times less than % change in QD. Only demaded at one particular price. Its is from 7 to infinity
Factors Affecting PED
Number of substitutes: If there are a lot it will be elastic and viceversa
Elastic with time, as consumers look for cheaper substitutes
% Of income Spend on a commodity. If high, elastic and viceversa
Causes of Low PED
Need
Strong Brand Image
Addictive
Purchased out of habit
Little or no competitors
Small part of income spent on this product