1.2.4 PED And 1.2.5 YED

Question 1

Equation for PED

Answer 1

Percentage change in quantity demanded/percentage change in price

Question 2

Factors that affect PED

Answer 2

• Time - Price elasticity of demand tends to fall the longer the time period. This is mainly because consumers and businesses are more likely to turn to substitutes in the long-term.
• Competition for the same product - Some businesses face highly price elastic demand for their products. This is because they are in competitive markets where their product is either identical or a little different from those produced by other businesses.
• Branding - Some products are branded. The stronger the branding the less substitutes are acceptable to customers.
• The proportion of income spent on a product. - For inexpensive products were the proportion of a consumers income spent on the transaction is very small demand is likely to be inelastic.

Question 3

Price elastic demand

Answer 3

A change in price results in a greater change in the demand

Question 4

Price elasticity of demand

Answer 4

Their responsiveness of demand to change in price

Question 5

Price inelastic demand

Answer 5

A change in price results in a proportionality smaller change in demand.

Question 6

What is the equation of Income Elasticity of Demand

Answer 6

Percentage change in quantity demanded/ Percentage change in income

Question 7

The factors influencing income elasticity of demand

Answer 7

• Necessities
• Luxuries

Question 8

The significance of income elasticity of demand to business?

Answer 8

• Businesses selling goods with high income elasticity : this means that when the economy is growing demand for goods is also growing.
• Business selling goods with low income elasticity : - Demand for goods that are income inelastic tends to be more stable during the different phases in the business cycle.
• Production planning : If businesses know the income elasticity of demand for their products they can respond to predicted changes in incomes. Businesses that produce goods that income elastic demand will expect changes in income to affect demand.

Question 9

Discretionary expenditure

Answer 9

• Non-essential spending or spending that is not automatic

Question 10

Income elastic demand

Answer 10

The percentage change in demand for a product is proportionally greater than the percentage change in income

Question 11

Income elasticity of demand

Answer 11

-if income goes up then demand will go up
-if income goes down then demand will go down

Question 12

Income inelastic demand

Answer 12

-if income goes up then demand will stay the same
-if income goes down then demand will stay the same

Question 13

What is an inelastic product?

Answer 13

-if price goes up then demand will stay the same
-if price goes down then demand will stay the same

Question 14

What is an elastic product ?

Answer 14

-if price goes up then demand will go down
-if price goes down then demand will go up