Elasticity

Question 1

Definition of PED

Answer 1

PED measures the responsiveness of quantity demanded given a change in price.

Question 2

PED formula

Answer 2

% change in quantity demanded/ % change In price

Question 3

PED >1

Answer 3

Demand is price elastic

Question 4

PED<1

Answer 4

Demand price inelastic

Question 5

PED=0

Answer 5

Demand is perfectly price inelastic

Question 6

PED= infinity

Answer 6

Demand is perfectly elastic

Question 7

PED=1

Answer 7

Demand is unit price elastic

Question 8

PED demand curves

Answer 8

Inelastic= steep curve
Elastic=shallow curve
Perfectly inelastic(0)= vertical
Perfectly elastic (infinity)= horizontal

Question 9

PED-SPLAT

Answer 9

(S)ubstitute (no.)
(P)ercentage of income (5% increase for cars vs Apple)
(L)uxury/necessity
(A)ddictive/habit forming
(T)ime period (short term-less substitutes)

Question 10

Revenue equation

Answer 10

Price x quantity

Question 11

Effect of revenue if price is elastic

Answer 11

Price increase= revenue decrease

Price decrease=revenue increase

Question 12

Effect on revenue if price is inelastic

Answer 12

Price increase= revenue increase

Price decrease= revenue decrease

Question 13

PED and total revenue graph

Answer 13

PED and total revenue graph