Business Theme 1.2

Question 1

What is Equilibrium in the a Market graph?

Answer 1

It is the state in which market supply and demand balance each other and as a result prices become stable.

Question 2

What direction does the supply line and the demand line go?

Answer 2

-Supply goes to the sky
-Demand goes down

Question 3

What is price elasticity of demand?

Answer 3

It measures how responsive demand is due to changes in price.

Question 4

Price elasticity of demand formula?

Answer 4

Percentage change quantity demand / Percentage change in price.

Question 5

The factors influencing price elasticity of demand.

Answer 5

-Time, PED tends to fall the longer the timer period because customers are likely turn to substitutes.
-Branding, stronger it is the less substitutes are acceptable to customers.

Question 6

What is income elasticity of demand?

Answer 6

It measures the responsiveness of demand to a change in income

Question 7

Formula for income elasticity of demand.

Answer 7

Percentage change in quantity demanded / Percentage change in income.

Question 8

YED = income elasticity of demand

The value for normal goods, luxury goods, inferior goods?

Answer 8

Normal : YED > 0
Luxury Goods : YED > 1
Inferior Goods : YED < 0

Question 9

What is “Discretionary expenditure”

Answer 9

Non-essential spending or spending that is not automatic.