Elasticities - Week 2 / Chp 5,6

Question 1

What is the elasticity of demand?

Answer 1

The elasticity of demand measures how sensitive the demand of a product is relative to changes in a variable such as price and income.

Question 2

What is elasticity of demand formula?

Answer 2

% change in the quantity demanded/ % change in price or income

Question 3

What are the sign of elasticity of demand?

Answer 3

shows the direction in which the variable and the quantity demanded change; the size of the answer shows how sensitive demand is to changes in the variable.

Question 4

What is the price of elasticity of demand?

Answer 4

measures the percentage change in the quantity demanded of a product relative to a percentage change in price, all other factors unchanged.

Question 5

What is formula for price elasticity of demand?

Answer 5

% change in the quantity of demanded/ % change in price of the product

Question 6

Demand

Answer 6

The quantity of a good/service consumers are willing and able to buy of a given price in a given time period.

Question 7

Law of Demand

Answer 7

There is an inverse relationship between price and quantity demanded. As price increases, Quantity of demand decreases and vice versa.

Question 8

What is Supply?

Answer 8

The quantity of a good/service producers are willing and able to produce at a given price in a given time period.

Question 9

Law of Supply

Answer 9

There is a direct relationship between price and quantity supplied. As price increases, Quantity of Supply increases and vice versa.

Question 10

What is PED?

Answer 10

Measures the responsiveness of quantity demanded given a change in price.

Question 11

Equation for PED?

Answer 11

%Change in quantity demanded / % change in price

Question 12

Equation for change in?

Answer 12

Difference/ Original x 100

Question 13

is PED always positive or negative?

Answer 13

always negative. The price elasticity of demand is ordinarily negative because quantity demanded falls when price rises, as described by the “law of demand”.

Question 14

If PED is more than 1 what does it mean?

Answer 14

Demand is price elastic

Question 15

If PED is less than 1 what does it mean?

Answer 15

demand is price inelastic

Question 16

If PED is =0 what does it mean?

Answer 16

perfectly price inelastic

Question 17

If PED is infinite what does it mean?

Answer 17

perfectly price elastic

Question 18

If PED is 1 what does it mean?

Answer 18

demand is unit price elastic

Question 19

What is price elastic supply ?

Answer 19

Measures the responsiveness of quantity supplied given a change in price.

Question 20

equation for PES?

Answer 20

%change in quantity of supply/ %change in price

Question 21

is PES always positive ?

Answer 21

yes because this is because the change in price and quantity are either both positive or both negative. If price goes up, quantity supplied goes up; if price goes down, quantity supplied goes down too.

Question 22

if PES is more than 1?

Answer 22

supply is price elastic

Question 23

if PES is less than 1?

Answer 23

supply is price inelastic

Question 24

if PES is equal to 0?

Answer 24

supply is perfectly price inelastic

Question 25

if PES is infinite ?

Answer 25

perfectly price elastic

Question 26

if PES is equal to 1?

Answer 26

supply is unit price elastic

Question 27

Cross elasticity of demand

Answer 27

measures the responsiveness of quantity demanded of a good/service given a change in price of another.

Question 28

equation for xed ?

Answer 28

%change in quantity demand of good A / % change in price b

Question 29

if xed is positive what does that mean?

Answer 29

it is a substitute - if price product A goes up , demand for the other product B will also go up

Question 30

if xed is negative what does that mean?

Answer 30

it is a compliment - if price product A goes up , demand for the other product B will go down.

Question 31

if XED is more than 1?

Answer 31

demand between the goods is price elastic ( strongly related)

Question 32

if XED is less than 1?

Answer 32

Demand between the goods is price inelastic (weakly related)

Question 33

if XED =0?

Answer 33

demand between the goods is perfectly price inelastic ( no relationship)

Question 34

what is yed? ( income of elasticity of demand)

Answer 34

measures the responsiveness of quantity demanded given a change in income.

Question 35

equation for yed?

Answer 35

%change in quantity demanded / % change in income

Question 36

if yed is positive it means?

Answer 36

if its is positive it is a normal good - as income goes up quantity goes up

Question 37

if yed is negative it means?

Answer 37

if its is negative it is a inferior good - as income goes up quantity goes down

Question 38

if yed is more than 1 ? (for normal goods)

Answer 38

demand is income elastic normal luxury

Question 39

if yed is less than 1 ? (for normal goods)

Answer 39

demand is income inelastic normal necessity

Question 40

if yed is more than 1 ? ( for inferior goods)

Answer 40

demand is income elastic

Question 41

if yed less than 1 ? ( for inferior goods)

Answer 41

demand is income inelastic

Question 42

if yed is equal to 0

Answer 42

demand is perfectly income inelastic