Micro 2.6 Price Elasticities of demand

Question 1

Elasticity

Answer 1

Responsiveness of a chnage in one thing to a change in something else.

Question 2

Price Elasticity of Demand

Answer 2

Measures the responsiveness of demand after a change in price

Question 3

PED is calculated by

Answer 3

% change in quantity demanded/ % change in price

Question 4

PED=0

Answer 4

Perfectly inelastic- when price changes the QD does not change at all.

Question 5

PED= 0 to -1

Answer 5

Inelastic demand-when price changes the QD changes by a proportinally smaller amount.

Question 6

PED=-1

Answer 6

Unit elastic- when price changes the QD changes by the same percentage

Question 7

PED= -1 to -inifinity

Answer 7

Elastic demand- when price changes QD proportionally changes by a larger percentage.

Question 8

PED=- infinity

Answer 8

When price changes, the QD changes infinitely. There can only be one price.

Question 9

What will happen to a firm’s revenue?

When a firm faces inelastic demand, an increase in the price will….

Answer 9

Increase revenue

Question 10

What will happen to a firm’s revenue?

When a firm faces inelastic demand, a decrease in the price will….

Answer 10

lead to a fall in revenue

Question 10

What will happen to a firm’s revenue?

When a firm faces elastic demand, a fall in price will lead to ….

Answer 10

an increase in revenue

Question 11

What will happen to a firm’s revenue?

When a firm faces elastic demand, an increase in price will lead to ….

Answer 11

a fall in revenue

Question 12

If close substitues are available, PED will be….

Answer 12

more elastic

Question 13

If the good is a necessity, PED will be….

Answer 13

more inelastic

Question 14

If the good takes up a large proportion of a consumer’s income, the PED will be….

Answer 14

more elastic

Question 15

If complementary products lock consumers into a deal then PED will be

Answer 15

inelastic

Question 16

If consumers are addicted to the good, the PED will be…

Answer 16

closer to 0 (inelastic)

Question 17

In the short run, PED is more likely to be

Answer 17

Inelastic

Question 18

In the long run, PED is more likely to be

Answer 18

elastic

Question 19

YED stands for

Answer 19

income elasticity of demand

Question 20

Formula for calculating income elasticity of demand

Answer 20

% change in quantity demanded/ % change in income

Question 21

Income elasticity of demand

Answer 21

measures the responsiveness of demand after a change in income.

Question 22

Why is it essential to use + or - signs in YED?

Answer 22

Because goods can be luxury, normal or inferior and the signs help with this.

Question 23

What is another way to think about elasticity?

Answer 23

It is how sensitive a consumer is to a change in price, income or the price of another good.

Question 24

Luxury good

Answer 24

(Positive elastic good), when income changes, QD increases by a greater proportion.

Question 25

Normal good

Answer 25

When income changes QD increases but by a smaller proportion

Question 26

YED=0

Answer 26

When income changes, the QD does not change at all.

Question 27

Inelastic inferior good

Answer 27

When income changes the QD changes by a smaller percentage in the opposite direction.

Question 28

Elastic inferior good

Answer 28

When income changes the QD changes by a larger percentage in the opposite direction.

Question 29

YED= 5

Answer 29

Luxury good

Question 30

YED= 0.5

Answer 30

Normal good

Question 31

YED= -0.5

Answer 31

Inelastic inferior good

Question 32

YED=-5

Answer 32

Elastic inferior good

Question 33

Bus transport

Answer 33

Elastic inferior good

Question 34

Basic sliced bread

Answer 34

Inelastic inferior good

Question 35

Clothing

Answer 35

Normal good

Question 36

Jewellery

Answer 36

Luxury good

Question 37

XED

Answer 37

Cross elasticity of demand

Question 38

Formula to calculate XED

Answer 38

% change in QD product A / % change in price of Product B

Question 39

Cross elasticity of demand

Answer 39

Measures the responsivness of demand for one product to a change in the price of another product.

Question 40

XED= 1 to infinity

Answer 40

Elastic substitute- when price of Product B changes, the QD of Product A changes by a larger percentage in the same direction.

Question 41

XED= 0 to 1

Answer 41

Inelastic substitute- when the price of product B changes, smaller percentage change in QD of product A. (Weak substitute)

Question 42

XED=0

Answer 42

No relationship

Question 43

XED 0 to -1

Answer 43

Inelastic complement- when the price of product B changes the QD of product A changes by a smaller percentage in the opposite direction. (Weak complements)

Question 44

XED= -1 to infinity

Answer 44

Elastic complement- when price of product B changes, the QD of product A changes by a larger percentage in the opposite direction. (Close complements).

Question 45

Coke and Pepsi

Answer 45

Elastic substitutes

Question 46

Tea and coffee

Answer 46

Weak substitutes

Question 47

Bread and butter

Answer 47

Weak complements

Question 48

Petrol and cars

Answer 48

Strong complements