15. Elasticity

Question 1

What is Price Elasticity of Demand?

Answer 1

The responsiveness of quantity demanded to a change in price

Question 2

What goods may be considered as Elastic?

Answer 2

Holidays, clothes, designer jewellery, luxury goods

Question 3

What goods may be considered Inelastic?

Answer 3

Essential things such as Petrol, power, food, water

Question 4

What is Elastic Demand?

Answer 4

When price or other factors have a big effect on the quantity consumers want to buy.

Question 5

What is Inelastic Demand?

Answer 5

When price or other factors do not have a noticeable effect on quantity demanded

Question 6

What is the formular for calculating PED?

Answer 6

PED= %Change in quantity demanded/%Change in price

If the answer is greater than 1, Demand is Elastic
If the answer is less than 1, Demand is Inelastic

Question 7

What can impact the PED?

Answer 7

Number of substitutes - If consumers have choice then it is likely the good will be elastic
Time - The longer consumers look for a replacement good the more likely they are to find one
Proportion of income spent on the good. If the cost was minimal, changes in it will hardly be felt

Question 8

What is the Price Elasticity of Supply?

Answer 8

The responsiveness of quantity supplied to a change in price

Question 9

What is the formula for calculating PES?

Answer 9

PES= %change in Qs/%change in price
If the value is less than 1, supply is inelastic
If the value is greater than 1, supply is elastic

Question 10

What impacts PES?

Answer 10

Time - Supply is normally fixed, meaning a rise in price will not result in a rise in supply
Availability of resources - A firm will require more factors of production if they want to increase supply

Question 11

What does a Supply curve that is perfectly Price Inelastic look like?

Answer 11

A straight vertical line where a change in price does not affect supply

Question 12

What does a Supply curve that is perfectly Price Elastic look like?

Answer 12

A horizontal line where the price is the same regardless of Qs

Question 13

What does a Demand curve that is perfectly Price Inelastic look like?

Answer 13

A vertical line where a change in price does not affect demand for the good

Question 14

What does a Demand curve that is perfectly Price Elastic look like?

Answer 14

A horizontal line where a change in Qd will not affect price