![]() The PES for manufactured products is relatively high because it is easier to increase or decrease quantity supplied in response to a change in price. Mathematically, it can be conveyed because. The PES for primary commodities is relatively low because a change in price cannot lead to a proportionately large increase in quantity supplied. Suppose both goods are good A beneficial and good B. Shorter length of production period, more elastic More ease in storing goods, more elasticĪ. Ease and speed firms can shift resources from one industry to anotherĪ. ![]() Quicker resources can be shifted, more elasticī. Take time to change quantity supplied (react to price changes)Ī. The measure of how a change in the overall income level in an economy changes in the demand of a specific product.Ĭ. Price Elasticity of Demand (PED) A measure of the responsiveness of the quantity demanded of a good/service to a change in its price. package complementary goods together, display same area, stock up goods) Partner with such firms and link marketing plans to the pricing policy of the other firm. If a firm has a product that has a negative CED in relation to his rival’s product, the firm His product to increase product differentiation. The pricing policies of the rival firms, through advertising and adding different features to Price, Income & Cross Elasticities of Demand PED Change in Quantity Demanded Change in Price Example 1 Answer: PED -0.3 PED is less than -1 or. Respond quickly to change in the price of the rival’s product.įirms can make their goods less substitutable from its rivals so that it is less affected by The formula for calculating PED is: PED Percentage change in quantity demanded Percentage change in price In order to work out a percentage change, the following formula is used: Difference between figures Original figurex 100 For example, the price charged by a beauty salon for eyebrow threading is 5. Has a product that has a high positive CED in relation to his rival’s product, the firm has to What are the implications of XED for business if prices of complements/substitutes change?ĬED helps to increase the rival consciousness of a firm and plan pricing policies. Thus if a small change in price increases/decrease the sales of another product by a significant amount, the absolute value of XED would be high. ![]() Revenue rises when Ped <1 and a business raises their average selling price.Why does the absolute value of XED depend on the closeness of the relationship between two goods?Īssuming Xboxs and PS3s are close substitute goods.Ībsolute value of XED depends on the closeness of the relationship between two goods because if the price of Xbox rises a bit, everyone would switch over to the PS3 and the sales of PS3 may skyrocket. If Ped = (-) 1.6 then ticket sales will rise by 1.6 x 12.5% = 20%Ī local council raises the price of car parking from £3 per day to £5 per day and finds that usage of car parks contracts from 1,200 cars a day to 900 cars per day.Ĭalculate the price elasticity of demand for this price change and calculate whether total revenue from the car park rises or falls. Ped = % change in Qty Demanded / % change in Price They estimate that the price elasticity of demand for tickets is (-) 1.6.Ĭalculate the expected number of tickets sold if they reduce the ticket price to £7. Price Elasticity of Demand - Two Example CalculationsĪ cinema charges £8 per ticket for evening screenings and sells 250 tickets a night on average.
0 Comments
Leave a Reply. |