elasticity

Question 1

what is elasticity

Answer 1

measures the responsiveness of demand

Question 2

what is PED

Answer 2

price elasticity of demand

Question 3

what does PED measure

Answer 3

the extent to which the quantity of a product of demand is affected by the price

Question 4

what is the formula for PED

Answer 4

percentage change in quantity demanded / percentage change in price

Question 5

what does it mean if the coefficient of PED is more than 1

Answer 5

it is elastic
Change in demand is more than the change in price​

Question 6

what does it mean if the coefficient of PED is less than 1

Answer 6

inelastic
Change in demand is less than the change in price​

Question 7

what is unitary elasticity

Answer 7

coefficient of 1
Change in demand = change in price​

Question 8

what is perfectly inelastic

Answer 8

coefficient of 0

Question 9

what does it mean if demand is price inelastic

Answer 9

an increase in price leads to a smaller change into the quantity demanded so revenue will INCREASE

Question 10

what does it mean if demand is price elastic

Answer 10

an increase in price leads to a bigger change in quantity demanded so revenue will FALL

Question 11

why is PED important

Answer 11

• PED helps businesses to examine the likely impact of a change in price
• If PED > 1 (price elastic) then a change in price will cause a larger change in demand​
• This means overall revenues would increase if the price was reduced
• But overall revenues would decrease if the price was increased
• If PED < 1 (price inelastic​) then the opposite would happen

Question 12

factors affecting PED

Answer 12

• brand strength
• necessity
• habit
• availability of substitutes
• time

Question 13

what does YED stand for

Answer 13

Income elasticity of demand

Question 14

what is YED

Answer 14

measures the extent to which the quantity of a product demanded is affected by a change in income​

Question 15

formula

Answer 15

% change in quantity demanded
/ %change in income

Question 16

what coefficient of income elastic goods

Answer 16

greater than 1
demand changes by more significant amount with income change

Question 17

what coefficient of income inelastic goods

Answer 17

less than 1, greater than 0
demand relatively unresponsive to consumer income

Question 18

what are normal goods

Answer 18

necessities and luxuries

Question 19

what is the main factor influencing income elasticity of demand

Answer 19

type of product

Question 20

what happens to normal goods when incomes increase

Answer 20

demands also increase

Question 21

what happens to normal goods when incomes decrease

Answer 21

demand decreases

Question 22

what happens to inferior gods when income rises

Answer 22

demand decreases

Question 23

what happens to inferior gods when income falls

Answer 23

demand rises

Question 24

use of YED

Answer 24

• provide useful insights for decision making
• firms tend to like to have products with inelastic demand

Question 25

how to make demand more price inelastic​

Answer 25

Building strong brands and product USPs