1.1.4 Elasticity

Question 1

What is price elasticity of demand and its formula?

Answer 1

Price elasticity demand is how responsive demand is to a change in price, % Change in QD/ %Change in P

Question 2

How do you calculate % Changes in Demand/ Price?

Answer 2

Change in Demand/ OG Quantity Demanded x 100

Change in Price/ Original Price x 100

Question 3

How can you see if PED is inelastic or elastic from a graph?

Answer 3

Large Gradient = Elastic

Sharp Gradient = Inelastic

Question 4

How can you determine if PED is elastic/inelastic from the numerical values?

Answer 4

PED = 1 → Unitary Elasticity

PED < 1 → Inelastic

PED > 1 Elastic

PED Horizontal → Perfectly elastic demand (change in price changes demand)

PED Vertical, Changes in price don’t affect demand

Question 5

What factors influence PED?

Answer 5

1. Price of Substitute Goods
2. Degree of Necessity
3. % of income product takes up
4. Addictivity

Question 6

What is PES, and its formula?

Answer 6

It is how responsive producers are regarding a change in price, %Change In QS / % Change in Price

Question 7

HOw can PED be determined as elastic or inelastic from numerical values?

Answer 7

PED Vertical → Perfectly Inelastic

PED Horizontal → Perfectly Elastic

PED = 1 → Unit PES

PED < 1 → Inelastic

PED > 1 Elastic

Question 8

What PES is suitable for producers?

Answer 8

Elastic PES, as it maximises profit because of how quick supply can be adjusted.

Question 9

What factors influence PES?

Answer 9

1. Factors of Production
2. Availability of Stocks
3. Spare capacity
4. Time

Question 10

Which YIDs show the preference for which goods?