Price elasticity of demand
Every time a business changes its price it is placing a bet on how customers will react. Price elasticity of demand is the number that tells you whether that bet pays off. In this lesson you will define PED, calculate it for both an elastic and an inelastic product, and use the total-revenue test to advise a business on whether raising the price will actually earn more money. You will also learn the factors that make demand elastic or inelastic, so you can judge a product you have never seen before. This is a favourite AS exam area: the calculation earns the marks, but the evaluation earns the grade.
By the end you should be able to (NSSCAS Business Studies (AS) 3.5):
- define, calculate and analyse price elasticity of demand (elastic and inelastic)
- explain the factors that determine the price elasticity of demand
- evaluate the significance of price elasticity of demand in making pricing decisions
Miss Maria and Mike talk through the whole topic — with the figure and working drawn live.