Elasticity

Question 1

Price Elasticity of Demand

Answer 1

The responsiveness of a change in demand to change in price.

Question 2

PED formula

Answer 2

PED=%changeQD/%changeP

Question 3

Price Elastic Good

Answer 3

PED > 1

Question 4

Price Inelastic Good

Answer 4

PED < 1

Question 5

Unitary Elastic Good

Answer 5

PED = 1 (change in quantity demanded and price are the same)

Question 6

Perfectly Price Inelastic

Answer 6

PED = 0

Question 7

Perfectly Elastic

Answer 7

PED = infinity

Question 8

Factors influencing PED

Answer 8

• Necessity
• Substitutes
• Addictiveness
• Proportion of income spent on good
• Durability
• Peak and off-peak demand

Question 9

Income Elasticity of demand

Answer 9

Responsiveness of a change in demand to a change in income.

Question 10

YED formula

Answer 10

YED = %changeQD/%changeY

Question 11

Inferior Goods

Answer 11

Fall in demand as income rises (YED<0)

Question 12

Normal Goods

Answer 12

Demand increases with income (YED>0)

Question 13

Luxury Goods

Answer 13

Income increase causes bigger increase in demand (YED>1)

Question 14

Cross Elasticity of Demand

Answer 14

The responsiveness of a change in demand of one good, X, to a change in price of another, Y.

Question 15

XED formula

Answer 15

XED = %changeQD of X/%changeP of Y

Question 16

Complimentary Goods

Answer 16

Negative XED

Question 17

Substitutes

Answer 17

Positive XED

Question 18

Unrelated Goods

Answer 18

XED = 0