Determinants Of Ped
Economics notes
Determinants Of Ped
➡️ Price Elasticity of Demand (PED) is a measure of how responsive the quantity demanded of a good or service is to a change in its price. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
➡️ The main determinants of PED are the availability of substitutes, the proportion of income spent on the good or service, the necessity of the good or service, and the time frame in which the change in price is observed.
➡️ PED is an important concept for businesses to understand, as it can help them to determine the optimal pricing strategy for their products and services.
What are the main determinants of the Price Elasticity of Demand (PED)?
The main determinants of the Price Elasticity of Demand (PED) include the availability of substitutes, the proportion of income spent on the good, the necessity of the good, and the time frame of the analysis.
How does the availability of substitutes affect the PED?
The availability of substitutes affects the PED by increasing the likelihood that consumers will switch to a different good if the price of the original good increases. This increases the responsiveness of demand to price changes, resulting in a higher PED.
How does the proportion of income spent on a good affect the PED?
The proportion of income spent on a good affects the PED by increasing the sensitivity of demand to price changes. If a large proportion of a consumer's income is spent on a good, then a small change in price can have a large effect on the demand for the good, resulting in a higher PED.