Elasticity

Question 1

What is elasticity?

Answer 1

Elasticity refers to the responsiveness of demand to a change in price.

Question 2

What is PED?

Answer 2

Price elasticity of demand

Question 3

What is the equation for PED?

Answer 3

PED= %change in quantity demanded / %change in price

Question 4

If elasticity is 0 what is the product classed as?

Answer 4

Perfectly inelastic

Question 5

If elasticity is less than 1 what is the product classed as?

Answer 5

Relatively inelastic

Question 6

If elasticity is equal to 1 what is the product classed as?

Answer 6

Unitary elasticity

Question 7

If elasticity is greater than 1 the product is classed as what?

Answer 7

Relatively elastic

Question 8

If elasticity is infinite what is the product classed as?

Answer 8

Perfectly elastic

Question 9

Give an example of a product with perfect inelasticity for PED.

Answer 9

Petrol- as there are no alternatives

Question 10

What does Y stand for?

Answer 10

Income

Question 11

What is YED?

Answer 11

The responsiveness of demand to a change in income

Question 12

What is the equation for YED?

Answer 12

YED= % change in demand / % change in income

Question 13

What are normal goods?

Answer 13

Products (most) have a positive coefficient of YED. So if you have a higher income you will demand more of these goods.

Question 14

What are inferior goods?

Answer 14

Some products that have a negative coefficient of YED. E.g. Potatoes, bread etc

Question 15

What is +ED?

Answer 15

Cross elasticity of demand is the responsiveness of a change in demand of good A to a change in the price of good B.

Question 16

What is the equation for +ED?

Answer 16

+ED = % change of QD of good A / % change of price of good B