202-Market Analysis

Question 1

Interpreting price elasticity of demand
Between 0-1=
1+=
Exactly 1=

Answer 1

Between 0 and 1 = Prince inelastic (demand changes by a smaller percentage than price has changed)

1+= Price elastic

Exactly 1 = unitary

Question 2

What does it mean if a product is price elastic?

Answer 2

PED of 1+
-overall rvenue increases with a price decrease
-overall revenue falls with a price increase

Question 3

What does it mean if a product is price inelastic?

Answer 3

-overall revenues fall with a price decrease
-overall revenue increases with a price increase

Question 4

What does a positive answer mean for YED

Answer 4

Normal and luxury goods. Demand increases as incomes increas and vice versa

Question 5

What does a negative answer mean for YED

Answer 5

Inferior goods - demand decreases as incomes increase i.e.people buy less of these products when they have more money

Question 6

YED between 0 and 1 - elastic or inelastic?

Answer 6

Income inelastic - demand changes by a smaller proportion to income

Question 7

YED of 1+ - elastic or inelastic?

Answer 7

Income elastic - demand changes by a larger proportion to income

Question 8

Should you interpret the sign (positive or negative) with the number (between 0-1 or 1+) OR… interpret the sign and the number seperately?

Answer 8

Interpret the sign and the number seperately

Question 9

What does it mean if there is a YED of -0.8?

Answer 9

For every 1% that income increases, demand will fall by 0.8% (income inelastic)