Elasticity

Question 1

Formula for Price elasticity of demand

Answer 1

Question 2

Price elastic demand (PED)

Answer 2

The responsivness of quantity demanded to a change in price

Question 3

Perfectly elastic of demand

Answer 3

infinity

Question 4

Relatively elastic of demand

Answer 4

>1

The change in price leads to an even bigger change in demand

Question 5

Unitary elasticity

Answer 5

=1

Change in demand is = to change in price

Question 6

Relatively inelastic of demand

Answer 6

<1

Good that is unresponsive to a change in price

Question 7

Perfectly price inelastic

Answer 7

=0

demand does not change when price changes

Question 8

6 Factors that influence PED

Answer 8

1. Necessity
2. Substitues
3. Addictiveness/ Habitual
4. Proportion of income spent on good
5. Time period
6. Peak and Off peak times

Question 9

Neccessity in terms of price inelasticity

Answer 9

Something you need e.g. petrol, electricity. Even if price increases significantly, consumers will still demand because they need it. So demand is price inelastic

Question 10

Substitutes in terms of elasticity

Answer 10

More substitues means demand is more price elastic

Question 11

Addictiveness

Answer 11

The demand is not senstive to a change in price because consumers become addicted to them

Question 12

Proportion of income spent on good in terms of inelasticity and elasticity

Answer 12

Small proportion of income e.g. £1.50 to £2, demand is inelastic

Significant proportion of income e.g. £15,000 £20,000, demand is elastic

Question 13

Time period in terms of elasticity and inelasticity

Answer 13

Demand for petrol is more elastic because people need it for travel, over time demand becomes more elastic and alternative transport methods can be used e.g. walking/bus/bike so demand becomes more elastic with time.

Question 14

Peak and off peak in terms of inelasticity

Answer 14

During peak times (9am to 5pm) demand for train tickets is more inelastic.

Question 15

Tax shifts which curve?

Answer 15

Supply

Question 16

Cross elasticity of demand (XED)

Answer 16

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

Question 17

Formula for cross elasticity of demand

Answer 17

Question 18

Substitute goods

Answer 18

positive cross elasticity of demand

• If price of one brand increases, consumers can switch to another brand

Question 19

Complementary goods

Answer 19

negative cross elasticity of demand

• If one good becomes more expensive, the quantity demanded for both goods fall

Question 20

Income elasticity of demand (YED)

Answer 20

Measures the responsiveness of demand to a change in income

Question 21

Formula for income elasticity of demand

Answer 21

Question 22

Inferior good

Answer 22

Increase in income leads to a fall in demand

• When income increases you buy better quality goods

Question 23

Normal good

Answer 23

As income increases it leads to an increase in demand

Question 24

Luxary good

Answer 24

An increase in income causes a bigger percentage increase in demand

• Such as holidays (which are also normal goods)