Chapter 6

Question 1

What does the term elastic mean

Answer 1

When PED is less than -1, very responsive to changes in price.

Question 2

What does the term inelastic mean

Answer 2

When the PED is 0- (-1), not as responsive to changes in price

Question 3

What does PED stand for

Answer 3

Price Elasticity of Demand

Question 4

What is the formula for PED

Answer 4

%change in quantity demanded / %change in price

Question 5

A steep gradient means

Answer 5

inelastic

Question 6

A steady gradient means

Answer 6

elastic

Question 7

What is PEDs definition

Answer 7

a measure of the sensitivity of quantity demanded to a change in the price of a good/service

Question 8

What does the PED value of (-1- 0) mean

Answer 8

Inelastic

Question 9

What does the PED value of (<-1) mean

Answer 9

Elastic

Question 10

What does the PED value of (-1) mean

Answer 10

Unit Elastic -

Question 11

Will the PED always be negative? True or False

Answer 11

True - because the demand curve is downward sloping

Question 12

Why PED is important to firms?

Answer 12

If the firm is considering changing its prices, it will tell them the extent to which demand will be affected

Question 13

For PED unit elastic: If price increases, total revenue would….. For a price decreases, total revenue ……

Answer 13

Does not change, Does not change

Question 14

Factors that influence PED

Answer 14

Substitutes
Percentage of income
Luxury or necessity
Addiction
Time
(SPLAT)

Question 15

What does YED stand for

Answer 15

Income Elasticity of Demand (YED)

Question 16

What is the definition of YED

Answer 16

A measure of the sensitivity of quantity demanded to a change in consumer incomes

Question 17

What is the formula for YED

Answer 17

%change in quantity demanded / %change in consumer income

Question 18

What does the YED value of (<-1) mean

Answer 18

Elastic inferior good

Question 19

What does the YED value of (-1 - 0) mean

Answer 19

Inelastic inferior good

Question 20

What does the YED value of (0 - 1) mean

Answer 20

Inelastic normal good

Question 21

What does the YED value of (>1) mean

Answer 21

Elastic Luxury(Normal) good

Question 22

YED helps firms as it can

Answer 22

Reduce information failure, Allows for more rational decision making. Helps forecast changing demand if incomes rise or fall - knowing what type of good is useful

Question 23

What does XED stand for

Answer 23

Cross Elasticity of Demand

Question 24

What is the definition of XED

Answer 24

a measure of the sensitivity of quantity demanded of a good or service to a change in price of some other good or service

Question 25

What does the XED value of (<-1) mean

Answer 25

Strong complement

Question 26

What does the XED value of (-1 - 0) mean

Answer 26

Weak complement

Question 27

What does the XED value of (0 - 1) mean

Answer 27

Weak substitute

Question 28

What does the XED value of (>1) mean

Answer 28

Strong substitute

Question 29

What does the XED value of (0) mean

Answer 29

No relationship

Question 30

What does PES stand for

Answer 30

Price Elasticity of Supply

Question 31

What is the definition of PES

Answer 31

a measure of the sensitivity of quantity supplied of a good or service to a change in the price of that good or service

Question 32

PES is always positive? True or False

Answer 32

True

Question 33

What does the PES value of (>1) mean

Answer 33

Elastic

Question 34

What does the PES value of (0 - 1) mean

Answer 34

Inelastic

Question 35

What does the PES value of (1) mean

Answer 35

Unitary elastic

Question 36

What does the PES value of (0) mean

Answer 36

Perfectly inelastic

Question 37

What does the PES value of (infinity) mean

Answer 37

Perfectly elastic

Question 38

What does a perfectly inelastic supply mean

Answer 38

a situation in which firms can supply only a fixed quantity, so cannot increase or decrease the amount available; elastic of supply is 0

Question 39

What does a perfectly elastic supply mean

Answer 39

a situation in which firms will supply any quantity of a good at a going price; PES value is infinite

Question 40

How does XED help firms

Answer 40

Helps to anticipate changing demand if prices of other products change. Helps firms be aware of close substitutes and complements therefore who their competitors are