Price wars - Price Elasticity of Demand

I blogged a while back that a price war in school uniforms led to Tesco selling a complete set for £3.75. It seems their low price strategy has worked with sales in their school uniform soaring 20% over the summer. Debenhams are now following this with a 60% cut in the cost of their school ranges.

The same tactics are being used in other clothing ranges with Aldi selling a complete suit for £27.98. Tesco and Asda are not far behind with £35 suits. These examples could be used for a lesson on competition or price elasticity of demand as currently a reduction in price will lead to a substantial increase in sales. Click read more for some questions on competition and price elasticity of demand (PED).

1. Explain two other tactics that companies could use to increase sales of their school uniforms.
2. Explain what is meant by Price Elasticity of Demand (PED).
3. Calculate the price elasticity of demand for Tesco’s school uniform.

Old Price £5.00
New Price £3.75
Old sales 200,000
New sales 300,000