Elasticities

Question 1

Define PED

Answer 1

PED is the change in quantity demanded of a good divided by the corresponding change in price

Question 2

What are the determinants of PED

Answer 2

Number/closeness of subs
Proportion of income spent on good
Time period

Question 3

What is meant by elastic PED

Answer 3

PED is elastic if the change in quantity demanded is larger than the change in price

Question 4

What is meant by inelastic PED

Answer 4

PED is inelastic if the change in quantity demanded of the good is smaller than the initial change in price (-1

Question 5

What is the formula for point elasticity

Answer 5

DQ/DP.P/Q

Question 6

Define PES

Answer 6

PED measure the change in quantity supplied of a good divided by the corresponding change in price

Question 7

Determinants of PES

Answer 7

How much costs rise as output rises

Time period

Question 8

Define IED

Answer 8

IED measures the percentage change in quantity demanded of a good divided by the corresponding percentage change in consumer income

Question 9

Determinants of IED

Answer 9

Degree of necessity

Proportion of income spent on good

Question 10

What is meant by a normal good?

Answer 10

If a good is normal then an increase in income leads to and increase in quantity demanded.
They can be luxury (>1) or necessity (0

Question 11

What is meant by an inferior good

Answer 11

A good is inferior if an increase in income leads to a decrease in quantity demanded (<0)

Question 12

Define XPED

Answer 12

XPED measures the percentage change in quantity demanded of good i divided by the corresponding percentage change in price of good j

Question 13

What is meant by a substitute good

Answer 13

A good is substitute if the XPED is positive

Question 14

What is meant by a compliment good

Answer 14

2 goods are compliments if they are consumed together. They are complements if XPED is negative