elasticity of demand

Question 1

What is price elasticity?

Answer 1

% change in demand / % change in price

Question 2

If PED is > 1 what is the product?

Answer 2

elastic

Question 3

If PED is < 1 what is the product?

Answer 3

inelastic

Question 4

What factors affect elasticity?

Answer 4

Inelastic if customers are loyal, it is an essential product, the product is a habit, the product has very little substitutes

Question 5

What is income elasticity?

Answer 5

% Change in demand / % Change in income

Question 6

What is a normal product?

Answer 6

positive value
As income goes up so does demand
Might be branded, little alternatives
If greater than 1, luxury
If between 0 and 1, necessity

Question 7

What is an inferior good?

Answer 7

negative value
inverse relationship
as income goes up demand falls
there may be alternatives, it is unbranded

Question 8

What are some factors to consider?

Answer 8

Consumer taste can influence price, not only demand
Some markets experience rapid change - demand will fluctuate
Competitors may react and change price, depending on loyalty, this can change demand