Price elasticity of demand PED Price levels Purpose

Price elasticity of demand (PED)

Price levels Purpose of: O Low price – O Average price – O Higher price –

PRICE ELASTICITY OF DEMAND (PED) O Used to measure how sensitive a products quantity demanded is to the change in price. O Elasticity of demand Coefficient >1 = elastic, <1 = Inelastic Unit elastic = 1 O Elastic product are usually ones with many substitutes or are luxuries eg. ? Chips O Inelastic products are things with few substitutes and we all need it eg. Things necessary for life, medicine, petrol

Perfectly Inelastic Demand: When demand is perfectly inelastic, quantity demanded for a good does not change in response to a change in price. . Perfectly Elastic Demand: When the demand for a good is perfectly elastic, any increase in the price will cause the demand to drop to zero.

Questions O If a product has a 20% change in price and a 30% change in demand, is it elastic or inelastic? O Complete Zigzag: the school enterprise company on page 105 due in 1 week

Pricing strategies O Cost-plus pricing – Working out the cost of the product and adding a certain percentage as profit O Psychological pricing – Certain prices encourage buyers to spend money. Just under round numbers eg. $9. 95 or $2999. 99 O Competitive pricing – Undercutting rival prices. May result in losses but can increase demand

Pricing strategies O Penetration pricing – What is it? An example O Skimming – What is it? An example

Homework O Summary question 1 -3 O Short answer question 15 O Complete group activity O Finish Zigzag: the school enterprise company due next week 5 th of April