elasticities

Question 1

What is the formula for:

PED

Answer 1

%change in qd
/
%change in price

Question 2

If a good is price elastic, how can revenue be maximised

Answer 2

Decrease the cost as a higher percentage more of people would buy the product then price is lost

Question 3

What are the factors influencing:

PED

Answer 3

substitutues
Percentage of income spent on goods and services
luxury or neccessity
addiction
time

Question 4

What is:

income elasticity of demand

Answer 4

%change in quantity demanded
/
% change in income

Question 5

How can it be determined if a product is:

Normal
Luxury
Inferior

Answer 5

elastic inferior good has a YED of <-1
Inferior good has a YED of <0
Normal good is between 0-1
Luxury good is between 1-2

Question 6

How can it be determined if a good is:

elastic or inelastic

Answer 6

elastic - <-1
inelastic - 0- -1
unitary - -1

Question 7

What is the formula for:

PES

Answer 7

%change in quantity supplied
/
%change in price

Question 8

What affects:

PES

Answer 8

Barriers to entry
Inventory levels
time lag
Ease of factor substitution - can workers switch tasks
Raw material availability
Space capacity - recession or not