Elasticity

Question 1

What is the equation for Price Elasticity of Demand (PED)?

Answer 1

% change in price

Question 2

The value of an INELASTIC good

Answer 2

Between 0 and -1

Question 3

The value of an ELASTIC good

Answer 3

Between -1 and infinity

Question 4

Definition of ELASTIC demand

Answer 4

If the demand changes more than proportionally to a change in price it is elastic in demand

Question 5

Definition of INELASTIC demand

Answer 5

If demand changes less than proportionally than the change in price it is inelastic in demand

Question 6

Diagram of INELASTIC demand

Answer 6

Vertical line of demand at Q1 with 3 price labels at the top, middle and low.
E = 0

Question 7

Diagram of ELASTIC demand

Answer 7

Horizontal line of demand with no quantity labels and demand should be horizontal from p1 with p2 and p3 being above and below.
E = infinity

Question 8

Diagram of UNITARY elasticity

Answer 8

A steep bow from the top left to the bottom right.
E = 1
(Do not need to draw this one)

Question 9

Reasons for goods being INELASTIC

Answer 9

Few substitutes (water, oil)
Necessity (electricity)
Addictive
Cheap
High brand loyalty

Question 10

Reasons for goods being ELASTIC

Answer 10

Lots of substitutes
Non-essential
Luxury 
Expensive
Little brand loyalty