Pack 6

Question 1

How is YED calculated

Answer 1

% change in QD / % change in income

YED measures the responsiveness of QD for a good/service to a change in income.

Question 2

Distinguish between normal and inferior goods

Answer 2

Inferior goods - goods where the QD decreases in response to an increase in consumer incomes so the YED figure is negative.

Normal goods - goods where the QD increases in response to an increase in consumer incomes so the YED figure is positive.

Question 3

Give 2 examples of goods which are normal necessities and give the YED figure you would expect

Answer 3

Petrol and toilet roll.
-for these we would expect a YED figure of in between 0 and +1 because people will always need them so if their income increases, the QD for these goods would increase but only by a small amount.

Question 4

Give 2 examples of normal luxuries and give the YED figure you would expect

Answer 4

Designer clothes and restaurant meals
-For these we would expect a YED figure in between +1 and infinity so if incomes rise, consumers spend proportionally more on the good.

Question 5

Give 2 examples of inferior goods and the YED figure you would expect

Answer 5

Bus tickets and Aldi
-For these we would expect a negative YED figure because people tend to demand higher quality goods as their incomes rise but if their incomes fall they have to buy lower quality goods.

Question 6

Why is it useful to sell a mixture of normal, luxury and inferior goods

Question 7

How is XED calculated

Answer 7

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

Question 8

What type of XED figure would you expect for substitutes

Answer 8

Positive XED figure because when the price of good B rises, demand for good A will also rise.

Question 9

What type of XED figure would you expect for goods which are complements

Answer 9

Negative XED figure because when the price of good B rises, demand for good A will fall since they are complimentary.

Question 10

Explain 2 strong and 2 weak subsitutes

Answer 10

Strong subs - scooters and bikes since they both provide the same function.

Weak subs - PlayStations and Monopoly board game since they have very little correlation.

Question 11

Explain 2 strong and 2 weak complements

Answer 11

Strong complements - a cot and pushchair since both are needed to take care of a baby.

Weak complements - beans and fish fingers since many people might not like beans but some people do like it with fish.