1.2.4 price elasticity of demand

Question 1

define elasticity

Answer 1

measures the responsiveness of demand to a change in a relevant variable - such as price and income

Question 2

define ped

Answer 2

measures the extent to which the quantity of a product demanded is affected by a change in price

Question 3

define inelastic

Answer 3

demand does not change with price

Question 4

define elastic

Answer 4

demand does change with price
if we drop the price of a product then demand should rise

Question 5

interpreting ped

Answer 5

price elastic = more than 1
price inelastic = less than 1
unitary price elasticity = exactly 1

Question 6

factors influencing ped

Answer 6

luxury good or necessity = more elastic
substitutes = no or few substitutes, prices are inelastic
perfecting inelastic

Question 7

inelastic goods

Answer 7

when price increases total revenue increases
when price decreases total revenue decreases

Question 8

elastic goods

Answer 8

when price goes up total revenue decreases
when price falls the total revenue increases

Question 9

ped formula

Answer 9

% change in quantity demanded / % change in price

Question 10

ped values

Answer 10

0 = perfectly inelastic
< 1 = inelastic
1 = unit elastic
> 1 = elastic