| How can Substitutes be an Influence to Price Elasticity of Demand | -More Alternatives a Good has will make it more Price Elastic Demand as Consumers will be able to switch to an Alternative if the Price Rises
-The Number of Substitutes is based on how Closely Linked they are. |
| How can the Type of Good/Service be an Influence to Price Elasticity of Demand | -For Essential Goods, it is Price Inelastic. Consumers will still need to Buy even if Price goes Up. Non-Essential Goods is the Opposite [Elastic]
-Goods that are Habit-Forming [Tabaco, Alcohol] are Demand Price Inelastic
-Goods that can not be Postponed are Demand Price Inelastic
-Goods with Several Uses, like Water, are Price Inelastic. |
| How can the Percentage of Income spent on a Good be an Influence to Price Elasticity of Demand | -If the Good requires a Large % of Income, it will be more Price Elastic than Goods that need a Small %
-Big Ticket Goods will have Consumers spend more Time looking at the Best Price |
| How can Time be an Influence to Price Elasticity of Demand | -Usually, overtime, Demand becomes more Price Elastic as Consumers have had the Time to Shop around and find Alternatives
-Habits and Loyalties can also Change |
| How can the Price Elastic Demand change over a Demand Curve?
[For a Normal Good]
-What happens to Revenue therefore? | -It begins at Negative Infinity - High Price but 0 Demand
-Then eventually reaches -1 at the Midway, and then to 0 when Price = 0
-Revenue will be Constantly Changing therefore. Total Revenue will be when the PED is - or + 1. |
| What will happen to
1. Good with ELASTIC Demand
2. Good with INELASTIC Demand
If the Price Rises | 1. This will lead to Less Revenue.
2. This will lead to More Revenue |
| What is a Normal Good? | -Normal Goods are those with a Positive YED [Income Elastic Demand]
-This means as Income Rises, Demand will also Rise. The Amount of Quantity Demanded is Subject to Products Elasticity |
| What is a Luxury Good? | -This is when the YED is More than 1 |
| What is an Inferior Good? | -Inferior Goods are those with a Negative YED.
-This means as Income Rises, Demand will Fall as the Inferior Good is Replaced with a Better Quality Normal Good |
| What XED will occur if there are:
1. Substitutes
2. Complements
3. There is a XED of 0 | 1. Substitutes will have a Positive XED. This means a Fall in Price of One Good leads to a Fall in Demand for the Other Good. The Intensity is Dependent on how Linked the Goods are.
2. Complementary Goods will have Negative XED. Increase in Price for One leads to a Fall in Demand for its Complements
3. This means the Good are not Independent and aren't Related. |
| How can the YED of a Product be Used for Sales Forecasting & Pricing Policy?
-Why may Firms choose to Produce a Range of Goods with Different YEDs | -If Changes in Income is Likely, then Sale Levels can be Predicted - the YED of the Good must be known.
-If Price is Reduced when Incomes are Expected to Fall, then the Demand Reduction will be Limited - Less Switch over to Inferior Goods
-Making a Rang of YED Goods will mean that during a Boom, Demand for High YED will Increase. During a Recession, Goods with Low YED will be High. |
