1. Price elasticity of demand (PED)
Price increases by 10%
Demand falls by 13%
PED is price elastic as the fall in demand is greater than the fall in price.
Price elastic demand means that a change in price will lead to a more than proportional change in demand i.e. demand is sensitive to price changes
Price inelastic demand means that a change in price will lead to a less than proportional change in demand i.e. demand is not so sensitive to changes in price
How price inelastic can a cheese sandwich really be?
Introducing the world's most expensive sandwich
Can you think of products that are likely to be highly price elastic and some that are likely to be highly price inelastic?

2. Price elasticity of demand
The responsiveness of demand to a change in price.
Calculated by:
% change in quantity demanded
% change in price

3. Price elasticity of demand (PED)
In business it is assumed that the PED will always be negative i.e. price and demand will always move in the opposite direction
If PED is between 0 and -1 e.g then demand is price inelastic
If PED is more than -1 e.g then demand is price elastic
Price of Football: Ticket increases outstrip cost of living
Why can premier league football clubs charge such high prices for tickets?

4. Product with price elastic-demand Product with price-inelastic demand
Characteristics (Is it unique?)
Impact of a price cut
Numerically
Impact of a price rise

5. Factors influencing PED
new-fairlife-milk-product-price #ixzz3eHZSI200
QPR's unexpected ticket hike
stm
Wind power demand spirals
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6. What is the impact on change in price on revenue?
Business people want to know how a change in price will impact on revenue
This will help determine whether changing price is a good or bad marketing decision
Price elastic demand
Price inelastic demand
Raise selling price
Sales revenue will decrease
Sales revenue will increase
Lower selling price

7. The significance of PED
Price inelastic – if a product is price inelastic then a firm knows that if it raises price, even though demand will fall, total revenue will increase.
This can be shown mathematically.
Price = £1.00 Demand = 100 units
What is total revenue? Price x demand
£1.00 x 100 units = £100
PED = - 0.5
Should the firm raise price?
If the firm were to raise price by 10 pence, from £1.00 to £1.10, this is a 10% price rise (10%).
Using the PED formula: % change in Qd =
10%

8. The significance of PED
Rearrange the formula:
-0.5 x 10% = 5%
There is a 5% change in demand
PED is –ve therefore in this case when price goes up by 10% demand goes down by 5%
Demand will go down from 100 units to 95 units
What is total revenue? Price x demand
£1.10 x 95 units = £104.50
By raising the price of a price inelastic product the firm has increased TR.
TR will fall if the firm attempts to lower price.

9. The significance of PED
Laptops4u sold 1000 laptops in 2015 at a price of £400 each.
In 2016 they decided to reduce their laptop price to £350.
Their price elasticity of demand was -2.
Are Laptops4u’s laptops price elastic or price inelastic?
What was the total revenue in 2015?
What was the percentage change in price in 2016?
What was the percentage change in demand in 2016?
What was the new revenue on 2016?
Was it a good or bad idea to change price from a financial viewpoint?

10. TASK