Price Elasticity of Demand and Total Revenue Flashcards

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What is price elasticity of demand (PED)?

It measures how much demand changes when the price changes.

How do you calculate PED?

PED = percentage change in quantity demanded ÷ percentage change in price. We usually ignore the minus sign and use the size.

What do elastic, inelastic and unit elastic demand mean?

Elastic: PED > 1. Inelastic: PED < 1. Unit elastic: PED = 1.

What is total revenue and how do you work it out?

Total revenue is the money from sales. It equals price x quantity sold.

If demand is price elastic, what happens to total revenue when price goes up?

Total revenue goes down, because sales drop by a bigger percentage.

If demand is price elastic, what happens to total revenue when price goes down?

Total revenue goes up, because sales go up by a bigger percentage.

If demand is price inelastic, what happens to total revenue when price goes up?

Total revenue goes up, because sales fall by a smaller percentage.

If demand is price inelastic, what happens to total revenue when price goes down?

Total revenue goes down, because sales go up by a smaller percentage.

If demand is unit elastic, what happens to total revenue when price changes?

It stays the same.

How do you find the percentage change needed for PED?

Percentage change = change ÷ original x 100.

A shop cuts price by 10%. Demand rises by 15%. What is PED and what happens to total revenue?

PED = 15% ÷ 10% = 1.5 (elastic). Total revenue goes up.

A cafe sells 50 drinks at £2 each. What is its total revenue?

£100.