Price elasticity of demand
- Created by: Izzie
- Created on: 28-02-18 15:44
View mindmap
- Price Elasticity of Demand (PED)
- Price elasticity of demand measures the extent to which a change in price leads to a change in quantity demanded
- Factors influencing price elasticity of demand
- Number & closeness of substitutes
- The more substitutes it has the more price elastic it will be
- Luxury or necessity
- luxuries = price elastic, necessity = price inelastic
- Proportion of income spent on a good
- Time scale
- Number & closeness of substitutes
- In a highly competitive market many rivals offer similar/standardised products & demand for any of them will be price elastic
- Many businesses in this situation won't consider a price increase as sales & revenue would fall
- Businesses are in a stronger position when demand for their product is price inelastic.
- They can use market research to target specific groups of customers with product features that appeal
- When there are few substitutes demand tends to be less price sensitive
- If a brand has strong brand loyalty they can keep in touch with their markets closely giving them the info they need onto whether or not to raise prices
- If demand is price elastic
- Increasing price decreases revenue
- Decreasing price increases revenue
- If demand is price inelastic
- Increasing price increases revenue
- Decreasing price decreases revenue
Comments
No comments have yet been made