1. The Market System: Unit 8 -10

Question 1

1. What is PED? (price elasticity of demand)

Answer 1

• PEd, is the responsiveness of demand to a change in price.

Question 2

How to calculate PED?

Answer 2

PED = % change in quantity demanded
————————————————
% change in price

Question 3

2. What is inelastic demand?

Answer 3

inelastic demand is a change in price that results in a proportionately smaller change in the quantity demanded.

Question 4

3. What is elastic demand?

Answer 4

change in price results in a greater change in the quantity demanded.(price elastic)

Question 5

4. What are the 3 types of elasticity?

Answer 5

• perfectly elastic
• perfectly inelastic
• unitary elastic

Question 6

5. What is perfectly elastic?(demand)

Answer 6

• demand where PED = infinity ( an increase in price will result in zero demand)

Question 7

6. What is perfectly inelastic?(demand)

Answer 7

• demand where PED = 0. ( a change in price will result in no change in the quantity demanded)

Question 8

7. What is unitary elasticity?(demand)

Answer 8

• where PED = - 1 (the responsiveness of demand is proportionately equal to the change in price)

Question 9

8. What are the 4 factors affecting price elasticity of demand?

Answer 9

Time
Income
Necessity
Substitutes

Question 10

9. What is the price elasticity of supply?(PES)

Answer 10

• price elasticity of supply is the responsiveness of supply to a change in price.

Question 11

10. What is a fast-moving consumer good?(FMACG)

Answer 11

goods, especially food, that sell very quickly and in large amounts.

Question 12

11. What is inelastic supply?

Answer 12

inelastic supply is the change in price that results in a proportionately smaller change in the quantity supplied.

Question 13

12. What is elastic supply?

Answer 13

change in price results in a proportionately greater change in the quantity supplied.

Question 14

13. What is unitary elasticity of supply?

Answer 14

• where PES = 1. a change in price will be matched by an identical change in the quantity supplied.

Question 15

14. What are raw materials?

Answer 15

substances used to make a product.

Question 16

15. What are the 4 factors influencing PES?

Answer 16

Factors of production.
Availability of stocks.
Spare capacity.
Time.

Question 17

16. What is the income elasticity of demand?

Answer 17

income elasticity of demand is responsiveness of demand to a change income.

Question 18

17. How to calculate Income elasticity of demand?

Answer 18

YED = % change in quantity demanded
————————————————–
% change in income

Question 19

18. Name the 4 types of goods.

Answer 19

• necessities
• Luxury goods
• Normal goods
• Inferior goods

Question 20

19. What is luxury goods?

Answer 20

• Luxury goods are goods that consumers like to buy if they can afford them.

Question 21

20. What is Normal goods?

Answer 21

• are goods that have a positive relationship with incomes, when income increases demand for the good also increases.

Question 22

21. What is necessities?

Answer 22

• Necessities are “basic good” that consumers need to buy.

Question 23

22, What is inferior goods?

Answer 23

inferior goods are goods that have a negative relationship with income.

Question 24

23. Benefits of income elasticity to a business.

Answer 24

• Can switch production
• can control production

Question 25

24. 2 ways the government has an impact on price elasticity.

Answer 25

• Subsidies
• Indirect taxes