11- Price Elasticity Of Demand

Question 1

PED Definition

Answer 1

PED measures the responsiveness of quantity demanded given a change in price of a good

Question 2

PED Equation

Answer 2

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

Question 3

Percentage change equation

Answer 3

% change = new - old / old

Question 4

What does it mean if PED >1?

Answer 4

Demand is price elastic

Question 5

What does it mean if PED <1?

Answer 5

Demand is price inelastic

Question 6

What does it mean if PED=1?

Answer 6

Demand is unitary elastic

Question 7

What does it mean if PED= infinity?

Answer 7

Demand is perfectly elastic

Question 8

What does it mean if PED=0?

Answer 8

Demand is perfectly inelastic

Question 9

Elastic demand definition

Answer 9

Quantity demanded changes by a larger percentage than price does.

Question 10

Inelastic demand defintion

Answer 10

Quantity demanded changes by a smaller percentage than price does

Question 11

Perfectly inelastic demand definition

Answer 11

Quantity demanded doesn’t change at all as price changes

Question 12

Perfectly elastic demand definition

Answer 12

Buyers are prepared to purchase all they can obtain at some given price but none at all at a higher price.

Question 13

Unitary elastic demand defintion

Answer 13

Quantity demanded changes by exactly the same amount as price does.

Question 14

Demand curve for perfectly inelastic demand

Answer 14

Vertical demand curve

Question 15

Demand curve for perfectly elastic demand

Answer 15

Horizontal demand curve

Question 16

Demand curve for price elastic demand

Answer 16

Shallow demand curve

Question 17

Demand curve for price inelastic demand

Answer 17

Steep demand curve

Question 18

What factors determines whether a good is price elastic or inelastic?

Answer 18

• Number of substitutes
• % of income
• Luxury / necessity
• Addictive/ habit forming
• Time period