LS12 - Elasticity

Question 1

PED

Answer 1

Measures responsiveness of demand given change in price
Price elastic when change in price causes proportionately larger change in demand
Price inelastic when change in price causes proportionately smaller change in demand

Question 2

Determinants for PED

Answer 2

Number of substitutes - more there are more elastic demand will be
Necessity or luxury - if necessity the more price inelastic it will be
Addictiveness - more addictive more price inelastic
Time - more time more price elastic
Proportion of income spent on product - more money spent more price elastic

Question 3

PED and PES values

Answer 3

Elastic - greater than 1
Inelastic - between 0 and 1
Unitary = 1
Perfectly elastic = 0

Question 4

PES

Answer 4

Responsiveness of supply given change in price
Price elastic when change in price causes proportionately larger change in supply
Price inelastic when price change causes proportionately smaller change in supply

Question 5

PES determinants

Answer 5

Time required to produce product - more time needed more inelastic
Level of spare capacity - more spare capacity more elastic
Number of stocks available - more stocks more elastic
Time - more time more elastic
Perishability of product - more perishable means harder to build up stock so more inelastic