Elasticity

Question 1

What are the factors effecting PeD

Answer 1

Substitutes
Time
Necessities
Addictive (in elastic)

Question 2

What are the factors affecting PeS

Answer 2

Stocks - if stocks of finished goods are available = elastic (manufacturers can respond quickly to price changes)
Time- ST, period of time factors of prod are fixed but LT period of time factors of prod are variable - elastic)
Subsidies

Working below spare capacity - elastic (firm has under-utilised machinery/ unemployed workers/ able to introduce new workers)

Question 3

When a subsidy is imposed, does the producer or consumer gain more (inelastic and elastic)
Where r they

Answer 3

In elastic - consumer gains more
(Below)
Elastic - producer earns more (ontop)

Question 4

How is revenue calculated

Answer 4

Selling price x quantity

Question 5

What is an inferior good, example and what kind of elasticity is it

Answer 5

Negative/ less than 1
Own branded goods (ASDA goods)
Income elasticity of demand
As people’s income increases, there is a decrease in demand for inferior goods

Question 6

What are normal goods, example and kind of elasticity

Answer 6

0-1
Necessities
As people’s income increases there is no change on the demand of normal goods
Income elasticity

Question 7

What are luxury goods, example and what kind of elasticity are they

Answer 7

Positive/ more than 1
Branded goods
Income elasticity
As people’s income increases the demand for luxury goods increased

Question 8

Why May companies need to know their income elasticity of demand

Answer 8

To know who their target audience are
To know how sales would be affected by a change in income (national minimum wage increase)
Know their Competition

Question 9

What is the equation for XeD

Answer 9

%change of Q demanded of good A
Divided
% change of Price of good B

Question 10

What are the 3 types of goods, and what they show

Answer 10

Unrelated goods (XeD =0) - good A has no impact on good B

Substitute goods (XeD <0) - positive
Cake (5.6 is bigger than 0.1 which means it’s stronger and more easily replaceable)

Complementary goods (XeD >0) - negative - phones and their chargers (as the price of chargers May rise the demand for iPhones will decrease)
(-7.5 is a stronger complement to -2.4)

Question 11

Why May firms want to know their XeD

Answer 11

To be aware of their competition
(Especially those which produce complements - goods cannot be exaggerated, need to be aware of others which make complements)