3. Price and income elasticity

Question 1

What does elasticity measure?

Answer 1

the responsiveness of demand to a change in a variable

Question 2

what is PED?

Answer 2

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

Question 3

PED formula?

Answer 3

% change in QD / % change in price

Question 4

What is a product elastic? PED value

Answer 4

> 1

Question 5

PED value for inelastic?

Answer 5

<1

Question 6

unitary price elasticity PED value?

Answer 6

exactly 1

Question 7

What is income elasticity of demand?

Answer 7

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

Question 8

How can YED be measured?

Answer 8

% change in QD / % change in income

Question 9

What are the three parts of YED?

Answer 9

luxuries and necessities and inferior

Question 10

Describe luxuries ?

Answer 10

income elasticity > 1

expensive holidays, branded goods, consumer goods

Question 11

Explain necessities?

Answer 11

income elasticity < 1

- ( groceries, own label goods

Question 12

What are some limitations of using elasticities?

Answer 12

• difficult to get reliable data on how demand changes to price
• other factors effect demand
• markets subject to rapid technological change
• competitors will react