Elasticity

Question 1

What is price elasticity (PED)

Answer 1

This is the change in quantity demanded of a good caused by the change in price of the good itself

Question 2

What is income elasticity (YED)

Answer 2

This is the change in the quantity demanded of a good caused by a change in the consumer’s income

Question 3

What are normal goods

Answer 3

A normal good is one for which demand rises when income rises and falls when income falls e.g toothpaste, food etc. (0+) . They can be split into luxury goods and necessities

Question 4

What are inferior goods

Answer 4

An inferior good is one for which demand rises when income falls and demand falls when income rises e.g discounted items, low quality meat. (-0)

Question 5

What is a necessity good?

Answer 5

When the YED is between 0 and 1, the good is a necessity. E.g food and toothpaste

Question 6

What is a luxury good?

Answer 6

When the YED is above 1, the good is a luxury. E.g television, jewellery, hotel trips

Question 7

What is elastic demand?

Answer 7

When a product has an elastic demand, small changes in the price will lead to large changed in the quantity demanded (bigger than -1 or +1)

Question 8

What is inelastic demand?

Answer 8

Small changes in the price will lead to small changes in the quantity demanded by consumers. (Between -1 and +1)

Question 9

What is inelastic demand?

Answer 9

Small changes in the price will lead to small changes in the quantity demanded by consumers. (Between -1 and +1)

Question 10

What is unitary demand ?

Answer 10

When a product has unitary demand, any change in the price will lead to the exactly same change in quantity demanded. (Exactly 1 or -1)