Chapter 2: Price system and the microeconomy

Question 1

Factors affecting price elasticity of demand

Answer 1

1. time
2. availability of goods
3. amount spent on the product

Question 2

Price elasticity of demand

Answer 2

% change in quantity demanded/ % change in price of the product

Question 3

Degrees of elasticity

Answer 3

inelastic- demand doesnt change too much when price changes
elastic - demand changes drastically when price changes
unitary - no change in revenue / proportionate change in demand is equal to change in price

Question 4

Why is PED generally negative?

Answer 4

bc price and demand is inversely proportional

as price goes up demand goes down// act in opp directions

Question 5

When is PED positive?

Answer 5

uncommon

• caviar
• wealthy people
• the more expensive it is, the better quality it is so it is demanded more

Question 6

Income elasticity of demand

Answer 6

% change in quantity demanded/ % change in income

Question 7

Factors influencing YED

Answer 7

1. economic development of the economy
   - depends on economy
   - motorcycle vs. car
2. proportion of income spent on the good
   - less income spent = more inelastic YED
3. definition of the product
   - type/ model/ quality

Question 8

YED of inferior good

Answer 8

-ve

bc as income increases, demand for inferior goods decrease because people can now afford better quality goods

Question 9

YED of normal goods

Answer 9

+ve

as income increases, demand for normal goods increase bc people can afford it