Market Analysis

Question 1

Price Elasticity of Demand (Def)

Answer 1

This measures the sensitivity of demand to a change in price.

Question 2

Price Elasticity of Demand (Formula)

Answer 2

Percentage Change in Quantity Demanded / Percentage Change in Price

Question 3

Price Elastic

Answer 3

Value is greater than 1
Change in price will cause a more than proportional change in the quantity demanded
If price goes up, demand falls to a significant extent
If prices goes down, demand increases to a significant extent

Question 4

Price Inelastic

Answer 4

Value is less than 1
Change in price will cause a less than proportional change in the quantity demanded
If price goes up, demand will decrease slightly
If price goes down, demand will increase slightly

Question 5

Unitary Inelastic

Answer 5

Value is equal to 1
A change in price will cause an equal and proportional change to demand

Question 6

Income Elasticity of Demand (Def)

Answer 6

This measures how sensitive demand is to a change
in income

Question 7

Income Elasticity of Demand (Formula)

Answer 7

Percentage Change in Quantity Demanded / Percentage Change in Income

Question 8

Normal Goods (YED)

Answer 8

As income increases, demand for normal goods will also increase.
(Lemonade, Newspapers)

Question 9

Luxury Goods (YED)

Answer 9

Demand for these goods increases faster than the initial raise in income that caused the demand to increase. These are novelty goods.
(Holidays Abroad, Sports Cars, Gym Membership)

Question 10

Inferior Goods (YED)

Answer 10

These are cheaper substitutes of products people will buy when income is reduced.
(Own-brand products, Fast Food)