Hand out 4 (elasticises of Demand)

Question 1

Define PED

Answer 1

Price Elasticity of demand. Measures the extent to which the demand for a good changes in response to a change in the price of that good.

PED = %change in Quantity/% change in price

Question 2

Define YED

Answer 2

Income Elasticity of Demand. Measure the extent to which demand change for a good in response to income.

YED = %change in Quantity/%change in income

Question 3

Define XED

Answer 3

Measures the extent to which the demand for a good changes in response to a change in price of another good
XED = %change in Quantity of good A/% change in Price of good B

Question 4

Define perfectly elastic

Answer 4

The quantity demanded is infinitely responsive to changes in price
PED = -∞

Question 5

Define Elastic

Answer 5

Means that PED is very responsive to change in price.

PED = between ∞ and -1

Question 6

Unit elastic

Answer 6

The quantity demanded is exactly responsive to changes in price
PED = -1

Question 7

Perfectly inelastic

Answer 7

PED = 0

Quantity demanded does not respond to changes in price

Question 8

Name the factors determining the PED

Answer 8

Time
Habitual
Income
Substitutes 
Peak
Off-peak
Necessity
Definition

Question 9

Inferior good

Answer 9

A good with a negative YED because demand falls when wages increase