Elasticities

Question 1

Definition of price elasticity of demand (PED)

Answer 1

PED measures the degree of responsiveness of quantity demanded of a good to a change in its price, ceteris paribus.

Question 2

Definition of price elasticity of supply (PES)

Answer 2

PES measures the degree of responsiveness of quantity supplied of a commodity to a change in its price, ceteris paribus.

Question 3

Definition of cross elasticity of demand (XED)

Answer 3

XED measures the degree of responsiveness of demand of Good X to a change in the price of good Y, ceteris paribus

Question 4

Definition of price elasticity of income (YED)

Answer 4

YED measures the degree of responsiveness of demand for a good to a change in consumers’ income, ceteris paribus.

Question 5

Determinants of PED (T.H.I.S.)

State T

Answer 5

Time period

Question 6

Determinants of PED (T.H.I.S.)

State H

Answer 6

Habit

Question 7

Determinants of PED (T.H.I.S.)

State I

Answer 7

Proportion of income spent on the good

Question 8

Determinants of PED (T.H.I.S.)

State S

Answer 8

Degree of availability of substitutes

i) No. & Closeness of substitutes
ii) Definition of the good

Question 9

Determinants of PES (C.P.F.)

State C

Answer 9

Cost of productions

i) Space capacity
ii) Perishability and duration of shelf-lives
iii) Availability of raw materials

Question 10

Determinants of PES (C.P.F.)

State P

Answer 10

Time period

i) Momentary time period/ Very short run (very SR)
ii) Short run (SR)
iii) Long run (LR)

Question 11

Determinants of PES (C.P.F.)

State F

Answer 11

Factor mobility

Question 12

Determinants of XED

Answer 12

Perceptions of consumers (Closeness of relationship)

Question 13

Determinants of YED

Answer 13

Consumers’ perception of the good [Income/Habit]