Elasticity

Question 1

What is PED?

Answer 1

PED measures the responsiveness of demand to a change in price.

Question 2

What is the formula for PED?

Answer 2

PED = % change in quantity demanded / % change in price

Question 3

An inelastic good for PED means…..

Answer 3

…..quantity demanded is not significantly affected by a change in price.

Question 4

An elastic good for PED means….

Answer 4

…..quantity demanded would be significantly affected by a change in price.

Question 5

What is the numerical result for perfect inelasticity for PED

Answer 5

0

Question 6

What is the numerical result for relative inelasticity for PED

Answer 6

0 to -0.99

Question 7

What is the numerical result for unit elasticity for PED?

Answer 7

-1

Question 8

What is the numerical result for relative elasticity for PED?

Answer 8

-1 to -∞

Question 9

What is the numerical result for perfect elasticity for PED?

Answer 9

-∞

Question 10

What are the determinants of PED?

Answer 10

HINTS
1. Habit Forming
2. Income% spent
3. Necessities
4. Time Frame
5. Substitutes

Question 11

What is habit forming ?

Answer 11

If a certain product is addictive, the more inelastic demand for that product there would be.

Question 12

What is income% spent?

Answer 12

The proportion of income % spent on a commodity, the greater the elasticity of demand for it and vice versa.

Question 13

What is necessities?

Answer 13

If a certain product is a need, which means it is necessary for survival, then demand for it would most likely be inelastic.

Question 14

What is timeframe?

Answer 14

If a certain product becomes more fashionable over a certain period of time, then demand would be inelastic as people would still buy the product anyway.

Question 15

What is substitute?

Answer 15

If substitutes are available, the product’s demand tends to be elastic. If the price of the product increases, people would shift to its close substitutes which are at a lower price.

Question 16

What is PES?

Answer 16

PES measures the responsiveness of supply to a change in price.

Question 17

What is the formula for PES?

Answer 17

PES = % change in quantity supplied / % change in price bought for

Question 18

An inelastic good for PES means….

Answer 18

….quantity supplied is not significantly affected by a change in price.

Question 19

An elastic good for PES means….

Answer 19

….quantity supplied is significantly affected by a change in price.

Question 20

What is the numerical result for perfect inelasticity for PES?

Answer 20

0

Question 21

What is the numerical result for relative inelasticity for PES?

Answer 21

0 to 0.99

Question 22

What is the numerical result for unit elasticity for PES?

Answer 22

1

Question 23

What is the numerical result for relative elasticity for PES?

Answer 23

1 to ∞

Question 24

What is the numerical result for perfect elasticity for PES?

Answer 24

∞

Question 25

What are Barriers to entry?

Answer 25

This prevents newcomers from entering a market or industry and so limits competition.

Question 26

What is spare capacity?

Answer 26

Spare capacity refers to how much extra room there is for a firm to increase its production. If there is more space, then supply would become inelastic as you can use that extra space to make more of the product.

Question 27

What is stocks?

Answer 27

Stocks refer to where companies can keep their products. If a firm can keep its products, this means that it can respond to price changes- and so therefore, the price would be elastic. If stocks are not available, it becomes very difficult to respond to price changes, thereby making supply inelastic.

Question 28

What is length of time to produce?

Answer 28

The length of time to produce refers to the duration of time it takes to make a good or service. If a product takes a long to time produce, this means that supply would be inelastic, and thus not receptive to price changes.

Question 29

What is skills of labour?

Answer 29

Labour is a factor of production which refers to workers who are involved in the production process. How skilled that worker is relates to the difficulty that that job entails and the level of qualification required.