Elasticity of Demand and Supply

Question 1

Demand

Answer 1

The quantity of a good/service consumers are willing and able to buy of a given price in a given time period.

Question 2

Law of Demand

Answer 2

There is an inverse relationship between price and quantity demanded. As price increases, Quantity of demand decreases and vice versa.

Question 3

What is Supply?

Answer 3

The quantity of a good/service producers are willing and able to produce at a given price in a given time period.

Question 4

Law of Supply

Answer 4

There is a direct relationship between price and quantity supplied. As price increases, Quantity of Supply increases and vice versa.

Question 5

What is PED?

Answer 5

Measures the responsiveness of quantity demanded given a change in price.

Question 6

Equation for PED?

Answer 6

%Change in quantity demanded / % change in price

Question 7

Equation for change in?

Answer 7

Difference/ Original x 100

Question 8

is PED always positive or negative?

Answer 8

always negative. The price elasticity of demand is ordinarily negative because quantity demanded falls when price rises, as described by the “law of demand”.

Question 9

If PED is more than 1 what does it mean?

Answer 9

Demand is price elastic

Question 10

If PED is less than 1 what does it mean?

Answer 10

demand is price inelastic

Question 11

If PED is =0 what does it mean?

Answer 11

perfectly price inelastic

Question 12

If PED is infinite what does it mean?

Answer 12

perfectly price elastic

Question 13

If PED is 1 what does it mean?

Answer 13

demand is unit price elastic

Question 14

What is price elastic supply ?

Answer 14

Measures the responsiveness of quantity supplied given a change in price.

Question 15

equation for PES?

Answer 15

%change in quantity of supply/ %change in price

Question 16

is PES always positive ?

Answer 16

yes because this is because the change in price and quantity are either both positive or both negative. If price goes up, quantity supplied goes up; if price goes down, quantity supplied goes down too.

Question 17

What is Supply?

Answer 17

the quantity of a good/service producers are willing and able to produce at a given price in a given time period

Question 18

What is law of supply?

Answer 18

there is a direct relationship between price and quantity supplied. As price increases quantity of supply increases and vice versa.

Question 19

if PES is more than 1?

Answer 19

supply is price elastic

Question 20

if PES is less than 1?

Answer 20

supply is price inelastic

Question 21

if PES is equal to 0?

Answer 21

supply is perfectly price inelastic

Question 22

if PES is infinite ?

Answer 22

perfectly price elastic

Question 23

if PES is equal to 1?

Answer 23

supply is unit price elastic

Question 24

Cross elasticity of demand

Answer 24

measures the responsiveness of quantity demanded of a good/service given a change in price of another.

Question 25

equation for xed ?

Answer 25

%change in quantity demand of good A / % change in price b

Question 26

if xed is positive what does that mean?

Answer 26

it is a substitute - if price product A goes up , demand for the other product B will also go up

Question 27

if xed is negative what does that mean?

Answer 27

it is a compliment - if price product A goes up , demand for the other product B will go down.

Question 28

if XED is more than 1?

Answer 28

demand between the goods is price elastic ( strongly related)

Question 29

if XED is less than 1?

Answer 29

Demand between the goods is price inelastic (weakly related)

Question 30

if XED =0?

Answer 30

demand between the goods is perfectly price inelastic ( no relationship)

Question 31

what is yed? ( income of elasticity of demand)

Answer 31

measures the responsiveness of quantity demanded given a change in income.

Question 32

equation for yed?

Answer 32

%change in quantity demanded / % change in income

Question 33

if yed is positive it means?

Answer 33

if its is positive it is a normal good - as income goes up quantity goes up

Question 34

if yed is negative it means?

Answer 34

if its is negative it is a inferior good - as income goes up quantity goes down

Question 35

if yed is more than 1 ? (for normal goods)

Answer 35

demand is income elastic normal luxury

Question 36

if yed is less than 1 ? (for normal goods)

Answer 36

demand is income inelastic normal necessity

Question 37

if yed is more than 1 ? ( for inferior goods)

Answer 37

demand is income elastic

Question 38

if yed less than 1 ? ( for inferior goods)

Answer 38

demand is income inelastic

Question 39

if yed is equal to 0

Answer 39

demand is perfectly income inelastic