Micro 12 - An Elasticities Experiment

Question 1

What is price elasticity of demand?

Answer 1

Price elasticity of demand is how the demand of a product changes in relation to a price change

Question 2

How can PED be measured?

Answer 2

%change in the QD / %change in price

Question 3

What does elastic mean?

Answer 3

Change in demand is responsive to change in price

Question 4

What does inelastic mean?

Answer 4

Change in demand is irresponsive to change in price

Question 5

What is unit elastic?

Answer 5

Change in price is equal to change in demand

Question 6

What does a PED of 1 mean?

Answer 6

The good is unit elastic

Question 7

What does a PED of less than 1 mean?

Answer 7

Good is inelastic

Question 8

What does a PED of more than 1 mean?

Answer 8

Good is elastic

Question 9

What is Income elasticity of demand (YED)?

Answer 9

Income elasticity of demand measures the change in quantity demanded to a change in income

Question 10

YED Calculation

Answer 10

%change in QD / %change in income

Question 11

What is cross elasticity of demand (XED)?

Answer 11

Cross elasticity of demand measures the change in demand of one product due to a change in price of another product

Question 12

How to calculate XED?

Answer 12

%change in QD of good A / %change in price of good B

Question 13

What does a positive XED mean?

Answer 13

Products are substitutes

Question 14

What does a negative XED mean?

Answer 14

Products are complements

Question 15

What is a YED of 0-1?

Answer 15

Normal good

Question 16

What is a YED of more than 1?

Answer 16

Normal luxury

Question 17

What is a negative YED?

Answer 17

inferior good