5.1 Price elasticity of demand and supply

Question 1

What does elasticity measure?

Answer 1

Elasticity measures how responsive one variable is to changes in another.

Question 2

What is the formula for Price Elasticity of Demand (PED)?

Answer 2

PED = % change in quantity demanded ÷ % change in price.

Question 3

What is the formula for Price Elasticity of Supply (PES)?

Answer 3

PES = % change in quantity supplied ÷ % change in price.

Question 4

What are the types of elasticity?

Answer 4

1. Elastic (>1): High responsiveness to price changes.
2. Inelastic (<1): Low responsiveness to price changes.
3. Unitary (1): Proportional responsiveness.

Question 5

What method is used to calculate elasticity?

Answer 5

The Midpoint Method is used to calculate elasticity.

Question 6

What is Perfect Elasticity?

Answer 6

Perfect Elasticity (Infinite Elasticity): Any price change leads to an infinite quantity change (horizontal curve).

Question 7

What is Perfect Inelasticity?

Answer 7

Perfect Inelasticity (Zero Elasticity): Price changes do not affect quantity (vertical curve).

Question 8

What characterizes Constant Unitary Elasticity?

Answer 8

Constant Unitary Elasticity: Demand curve is curved; Supply curve is a straight line from the origin.

Question 9

What is the Midpoint method for % change in quantity

Answer 9

Q2-Q1
———— X 100
(Q2+Q1)/2

Question 10

What is the Midpoint method for % change in price?

Answer 10

P2-P1
———- X 100
(P2+P1)/2