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PED for Lightbulbs
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Introduction This report has been produced to analyse the possible implications of increasing the price of our 100Watt light bulbs by 20%. Presently the cost of a light bulb is £0.80. This report will aim to fully assess and evaluate the price elasticity of demand of the product, which will enable an informed decision to be made on whether a price increase will be financially viable for the company. Concept of price elasticity The concept of price elasticity of demand (PED) is to measure the responsiveness of the quantity demanded to a price increase or decrease, with all other factors remaining the same. This is achieved by comparing the percentage change of the price of a product, in relation to the percentage change in demand for that product, and is calculated as follows, PED (price elasticity of demand) = Percentage change in the quantity demanded Percentage change in the price The determining factor in the above calculation depends on whether the PED is above or below 1. The price elasticity of demand can be split into three different categories once the above calculation is completed: Price Elastic If a product is deemed to be price elastic, the calculation will reveal that the PED is greater than 1, this shows that the percentage change in quantity demanded is greater than the % change in price.
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