1. Elasticity Intro

Question 1

What is elastic demand?

Answer 1

Elastic demand occurs when change in products quantity demanded is greater than a change in price. Usually has a flatter demand curve.

Question 2

What is inelastic prodcuts?

Answer 2

Inelastic demand is when a buyer’s demand for a product does not change as much as its change in price.

Question 3

Examples of elastic products

Answer 3

house

boat pizza

Question 4

EG of inelastic products

Answer 4

nappies

petrol

toilet paper

cigarettes

Question 5

Inelastic demand def?

Answer 5

occurs when change in products quantity demanded is less than change in price. usually represented by a ‘taller’ demand curve.

Question 6

Determinants of Price elasticity of demand (PED)

Answer 6

The availability of substitutes
Whether it is a luxury or necessity
Time
Proportion of Income spend

Question 7

If value is less than 1

Answer 7

product is relatively inelastic

Question 8

if value is more than 1

Answer 8

product is relatively elastic

Question 9

How do we calculate Price Elasticity of Demand PED

Answer 9

percentage change in quantity/percentage change in price

Question 10

How do we calc PED

Answer 10

change in quantity *price/quantity and change in price.

Question 11

Q

Answer 11

The price of a coffee in Perth is $4.

One million coffees are sold in Perth each week.

Market research has indicated that an increase in the price of a coffee of 40cents will decrease the quantity demanded by 30,000 coffees

Calculate the price elasticity of demand for coffee in Perth.

Question 12

Q

Answer 12

1) The new iPhone goes on sale and its price goes from $1500 to $1000. As a result, demand decreases from 800,000 to 1 million. Calculate the price elasticity of demand for the iPhone and comment on its elasticity.

Question 13

Q

Answer 13

2) Suppose the price of one way flights to Hobart increases from $200 to $250. Due to the price change, quantity demanded for flights decreases from 1600 to 1300. Calculate the price elasticity of demand for way flights from Perth to Hobart and comment on its elasticity

Question 13

What is midpoint method

Answer 13

The mid point method is very similar to the point method. The only difference is, instead of using the original price, we use the average price. Instead of using the original quantity, we use the average quantity.

Question 14

Mid point method formula

Answer 14

= change in quantity/quantity average times price average/ change in price

Question 15

Total revenue formula

Answer 15

It can be shown as: TR= P x Q i.e. If Nike sell 1,000 Air Jordans at $100, their Total Revenue is $100,000