#Yed economics how to

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If demand is inelastic then increasing the price can lead to an increase in revenue.

If the price of chocolate increased demand would be inelastic because there are no alternatives, however, if the price of Mars increased there are close substitutes in the form of other chocolate, therefore, demand will be more elastic.ġ.

In the short term, demand is usually more inelastic because it takes time to find alternatives.

They cost a small % of income or are bought infrequently.

if you have a car, you need to keep buying petrol, even if price of petrol increases

They have few or no close substitutes, e.g.

Goods which are inelastic tend to have some or all of the following features:

Inelastic demand PED <1 – Perfectly inelastic PED =0.

These are goods where a change in price leads to a smaller % change in demand therefore PED <1 e.g. if Sainsbury’s put up the price of its bread there are many alternatives, so people would be price sensitive.

Goods with many substitutes and a very competitive market.They are expensive and a big % of income e.g.Goods which are elastic, tend to have some or all of the following characteristics. If price increase from £50 to £55 and PED was 0.5 How much did quantity demanded fall?ĭefinition: Demand is price elastic if a change in price leads to a bigger % change in demand therefore the PED will, therefore, be greater than 1.

#Yed economics how to

If you need help calculating a percentage, see: How to calculate a percentage

If the price of petrol increased from 130p to 140p and demand fell from 10,000 units to 9,900.

If price increases by 10% and demand for CDs fell by 20%.

Definition: Price elasticity of demand (PED) measures the responsiveness of demand after a change in price.