Price Sensitivity
Degree to which demand changes with price.
Formula
Price Elasticity of Demand (PED) = % Change in Quantity Demanded ÷ % Change in Price
Real World
When Ryanair raises fares by 10%, demand drops sharply because budget airline customers are highly price sensitive — PED is elastic (greater than 1 in absolute terms).
Exam Focus
Always state whether demand is elastic or inelastic and link directly to the impact on total revenue — this is what earns application marks.
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