3.7 - Market Data and Price Elasticity

Question 1

What is Price Elasticity of Demand?

Answer 1

It measures the responsiveness of demand after a change in products own price

Question 2

How do you calculate PED?

Answer 2

% change in quantity demand/ % change i price

Question 3

What are the key factors/examples that determine PED of a product?

Answer 3

Cost of switching supplies
Availability of substitutes
Degree of necessity
Time frame when making a choice
Brand Loyalty
Percentage of income spent
Habitual demand

Question 4

Define inelastic

Answer 4

Demand won’t be affected by change in price

Question 5

Define elastic

Answer 5

Demand will be affected by change in price

Question 6

What is the use of PED?

Answer 6

Knowing the potential impact of a change in price on the level of demand

Question 7

What can firms use to estimate the PED of a product?

Answer 7

Effect of a change in price on total revenue of sales
Price volatility in a market following changes in supply
Effect of a change in indirect tax on price and quantity demanded

Question 8

What are the limitations of Elasticities?

Answer 8

PED varied by region/time period

Elasticity will vary within product ranges

Question 9

What is Income Elasticity of demand?

Answer 9

It measures the impact of a change in income on demand

Question 10

What is the formula to calculate YED?

Answer 10

% change in quantity demanded/ % change in income

Question 11

What is the range of values for Inferior goods?

Answer 11

-2 to -0.5

Question 12

What is the range of values for Necessities?

Answer 12

0 to 1

Question 13

What is the range of values for Luxuries?

Answer 13

1.5 to 2

Question 14

What is Inferior Goods?

Answer 14

Demand will decline as income increases

Question 15

What is Necessities?

Answer 15

Demand will increase moderately as income increases

Question 16

What is Luxuries?

Answer 16

Demand will strongly increase as income increases