1.2.3

Question 1

What is Elasticity of demand?

Answer 1

An attempt to measure the responsiveness of quantity demanded to changes in other variables.
- IF elastic it is responsive if inelastic unresponsive

Question 2

What is Price elasticity of demand (PED)?

Answer 2

• The responsiveness of demand to a change in the price of good

Question 3

Formula for PED?

Answer 3

%Change in quantity demanded/%change in price

Question 4

What is Unitary Elastic?

Answer 4

PED=1

Question 5

What is relatively elastic?

Answer 5

PED>1

Question 6

What is relatively inelastic?

Answer 6

PED<1

Question 7

What is perfectly elastic?

Answer 7

PED=infinity

Question 8

What is perfectly inelastic?

Answer 8

PED=0

Question 9

What are the factors influencing PED?

Answer 9

• Availability of substitutes
• Time
• Necessity
• How large of a % total expenditure
• Addictive

Question 10

Explain availability of substitutes which influence PED?

Answer 10

• If there are a lot of substitutes e.g Pepsi and Coke. People will switch to other products when prices go up. Therefore PED will be elastic. If there are no substitutes it will be inelastic, people will have to buy if no alternatives

Question 11

Explain time factors influencing PED?

Answer 11

The more time the more the person will find an alternative of the product so more the elastic it is. In short time price is inelastic

Question 12

Explain necessity factors influencing PED?

Answer 12

• If you need something it will be inelastic as you need to buy it even if price goes up

Question 13

Explain How large of a % of a total expenditure factors influencing PED?

Answer 13

• If a good or service represents a small percentage of a persons spending, A significant increase in price will have a small impact on how much they buy so it will be inelastic

Question 14

Explain addictive factors influencing PED?

Answer 14

• If a product is addictive the demand curve will be inelastic. No matter the price people will buy

Question 15

Explain the significance of PED?

Answer 15

• PED determines the imposition of indirect taxes and subsidies

Question 16

What does a more elastic demand curve mean?

Answer 16

• Lower the incidence of tax on consumer.

Question 17

What is YED?

Answer 17

• The responsiveness of demand to change an income

Question 18

Formula of YED?

Answer 18

%change in quantity demanded/%change in income

Question 19

What is an inferior good?

Answer 19

YED<0 A rise in income will lead to fall in demand for good. Tesco value goods are inferior

Question 20

What is a normal good?

Answer 20

YED>0 A rise in income will lead to a rise in demand for good

Question 21

What is a luxuruy good?

Answer 21

normal good when YED>1

Question 22

When does it mean it is elastic or inelastic?

Answer 22

If integer is smaller than 1 the good is inelastic if bigger than 1 it is elastic

Question 23

What is the significance of YED?

Answer 23

• Important to know how their sales will be affected by changes in the income of the population. It’s important to know wether is likely to increase sales or not

Question 24

What is Cross Elasticity of demand (XED)?

Answer 24

• The responsiveness of demand for one product to change in price for another product

Question 25

Formula for XED?

Answer 25

%change in quantity demanded for A/%Change in price of B

Question 26

When are substitutes needed?

Answer 26

• XED>0 and increase in price of B will increase A

Question 27

When are complementary goods needed?X

Answer 27

XED<0 increase of price B will increase A

Question 28

When are unrelated goods needed?

Answer 28

• XED=0 a chage in price of B has no impact on A

Question 29

What is the significance of XED?

Answer 29

• Firms need to be aware of competition and those producing complementary goods. They need to know how price changed by other firms will impact them