1.2.4 - 1.2.5: PED & YED

1.2.4 - 1.2.5: PED & YED

1. a) calculation of PED

2. b)

   • more than 1 = price elastic
     • less than 1 = price inelastic
   • if product is price inelastic and increase price, revenue increases
     • if product is price elastic and increase price, revenue falls
       • if prouct is price inelastic and lower price, revenue falls
         • if product is price elastic and lower price, revenue increase
       • e

3. C

   • - competition for the same product
     • branding - high brand awareness can build loyalty and reduce ped
       • time - longer product is on market, more opportunities for alternatives, more price elastic
         • consumer income - if higher, price becomes less important

4. a) calc of yed

5. ped - method to find the responsiveness of demand with changes in price

6. yed - method to find the responsiveness of demand with changes in income

7. b

   • greater than 1 = income elastic
     • lower than 1 = income inelastic
   • when demand for product increases as income increases, it is called normal good (always + sign)
     • when demand for product decreases as income increases, it is called inferior good (always - sign)

8. c

   • luxury / necessity goods
     • price of a product relative to income
       • cheaper product tend to be income elastic, expensive product e.g house income elastic

9. d

   • when economy is growing, luxury products increase in revenue
     • when in recession, revenue falls for luxury goods
   • low income elasticity goods are stable
   • if a business know yed, they can plan accordingly, e.g expecting increase in income and product is income elastic, can plan to have the required capacity
     • if know recession is expected, can cut output to match predicted level of demand

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