1.2.3 price, income and cross elasticities of demand

Question 1

what does YED show?

Answer 1

the responsiveness of demand for a product on a change in income

Question 2

YED formula

Answer 2

YED = % change in QD / % change in P

Question 3

what does a negative value show?

Answer 3

the good is an inferior good e.g. bus travel, savers range in a supermarket

Question 4

describe the responsiveness of demand and income on an inferior good

Answer 4

when incomes rise, you don’t demand as much of the good therefore QD falls

Question 5

what does a positive value show?

Answer 5

the good is a normal good e.g. jewellery

Question 6

describe the responsiveness for a normal good

Answer 6

when incomes rise, QD rises

Question 7

if YED = -1.2, what does this show about the good?

Answer 7

inferior good (negative value)

elastic , YED > 1 (as incomes rise, QD falls)

Question 8

if YED = 2.4, what does this show about the good?

Answer 8

normal good (positive value)

elastic , YED > 1 (as incomes rise, QD rises)

Question 9

if YED = 0.3, what does this tell us about the good?

Answer 9

normal good (positive value)

inelastic , YED < 1 (as incomes rise, QD falls)

Question 10

if YED = -0.01, what does this show us about the good?

Answer 10

inferior good (negative value)

inelastic , YED < 1 (as incomes rise, QD falls)

Question 11

what does XED show?

Answer 11

the responsive of demand for one product to a change in price of another product

Question 12

XED formula

Answer 12

XED = % change in QD of good A / % change in P of good B

Question 13

what does a positive XED value show?

Answer 13

the goods are substitutes

Question 14

what does a negative XED value show?

Answer 14

the goods are complements

Question 15

if XED = -0.3, what does this show about the products?

Answer 15

complement goods (negative value)

inelastic , XED < 1

Question 16

if XED = 1.8, what does this show about the products?

Answer 16

substitute goods (positive value)

elastic , XED > 1