Concept 2 : Price Elasticity of Demand

Question 1

What is the formula for PED?

Answer 1

PED = % change in quantity demanded / % change in price

Question 2

In a situation where the PED is 2, what can we expect the effect on demand will be when there is a 1% change in the price?

Answer 2

For every 1% change in price, there will be a 2% change in demand

Question 3

What does elastic demand mean?

Answer 3

When there is a change in Price, there is a greater change in quantity demanded

Question 4

When demand is elastic, we should expect the PED to be greater or smaller than 1?

Answer 4

More than 1

Question 5

When illustrating elastic demand graphically, should we expect the demand curve to be shallow or steep?

Answer 5

Shallow

Question 6

What does inelastic demand mean?

Answer 6

Where there is a change in price, there is a smaller change in quantity demanded

Question 7

When demand is inelastic, we should expect the PED to be greater or smaller than 1?

Answer 7

Less than 1

Question 8

When illustrating elastic demand graphically, should we expect the demand curve to be shallow or steep?

Answer 8

Steep

Question 9

Goods with a range of substitutes are likely to experience elastic demand. True or False?

Answer 9

True

Question 10

Goods with a few substitutes are likely to experience inelastic demand. True or False?

Answer 10

True

Question 11

Name 3 factors that are likely the elasticity of demand.

Answer 11

• Addictive properties
• Proportion of income spent on that product
• Necessity or Luxury
• Market conditions for that product ie its scarcity
• Time