elasticity of demand

Question 1

What is price elasticity of demand?

Answer 1

Elasticity of demand refers to the change in quantity demanded in relation to change in price.

Question 2

When does elastic demand occur

Answer 2

Elastic demand occurs when the change in a product’s quantity demanded is greater than a change in price.

It is usually represented by a “flatter” demand curve.

Question 3

Example of elastic demand

Answer 3

Boats

Question 4

Example of inelastic demand

Answer 4

Oil, bread

Question 5

What effects elasticity of demand

Answer 5

• Availability of substitutes
• Whether it is a luxury or necessity
• Time
• Proportion of Income speed

Question 6

How does Quantity react to price for inelastic goods?

Answer 6

Quantity is INSENSITIVE to price change

Question 7

What happens to the purchase of inelastic goods when there is a change in price?

Answer 7

People will continue to buy the product, and the same amount of the product despite fluctuating pricing. If price increases, demand will decrease a little. And if price decreases, demand will increase a little bit. Ceteris Parabus.

Question 8

Perfect inelasticity number

Answer 8

0

Question 9

What is unitary elasticity?

Answer 9

1

Question 10

What is Total Revenue?

Answer 10

Total Revenue refers to the total amount of income business or firms gain from selling a good or service.

Question 11

> 1 and <1 meaning.

Answer 11

More than 1 means Elastic
Less than 1 means Inelastic

Question 12

Do producers want to have elastic or inelastic goods and why? What is the effect?

Answer 12

A business wants to sell more inelastic goods. This means that consumers will not react as much to an increase in price. This will increase revenue and profit.

Question 13

What happens to the purchase of inelastic goods when there is a change in price?

Answer 13

People will continue to buy the product, and the same amount of the product despite fluctuating pricing. If price increases, demand will decrease a little. And if price decreases, demand will increase a little bit. Ceteris Parabus.

Question 14

How to calculate ped?

Answer 14

percentage change in quantity/ percentage change in price

Question 15

perfectly inelastic demand

Answer 15

If a change in price results in no change to quantity demanded,
the ED = 0 (perfectly inelastic)

Question 16

perfectly elastic demand

Answer 16

If a change in price results in infinitely large change in quantity demanded,
the ED = ∞ (perfectly elastic)

Question 17

inelastic demand

Answer 17

Inelastic demand occurs when the change in a product’s quantity demanded is less than a change in price. It is usually represented by a “taller” demand curve.

Question 18

define the factor AVALABILITY OF SUBSITUTES

Answer 18

The greater number of close substitutes the good has, the more price elastic its demand. if the price of good rises, and it has many substitutes then consumers will be sensitive to the price change

good with few substitutes have such as petrol would very inelastic.
the demand for petrol is inelastic because it has few substitutes

Question 19

define the factor TIME

Answer 19

if the consumers have time to respond to a price change, then demand will be more price elastic

in the immediate run, demand for most commodities will be relatively inelastic because consumers do not have the time to adjust their consumption to find substitutes

in the long run, consumers can fully adjust to the change in the market conditions

Question 20

define the factor LUXURY OR NECCESSITY

Answer 20

necessity type goods such as basic items of food will be more price inelastic than luxury type goods such as jewellery, designer hand bags

goods such as bread, milk, rice will be relatively inelastic in demand because these are essential food groups

if people need something they will continue buy in almost same amount even if the price increases

if an item is luxury, an increase in price will decrease the quantity demanded as people don’t need luxury

Question 21

define the factor Proportion OF INCOME SPENT

Answer 21

expensive goods are likely to be relatively price elastic because they take up a larger proportion of a consumer’s income or budget

cheaper, inexpensive items will be relatively inelastic because they take a small proportion of income

Question 22

example of time determinant

Answer 22

if petrol prices jump to very high levels, most consumers cannot change their consumption in the immediate because they need to go to work

if petrol remains high over a long period, then people will be able to respond and adjust to their consumption by using public transport or switching electric cars

Question 23

Unitary Elasticity

Answer 23

quantity demanded will change by the same proportion as the price change