PED

Question 1

characteristics of inelastic goods

Answer 1

• a necessity
• has no substitutes
• expenditure on it - is small as a % of total spending (if spending on an item is insignificant as a proportion of total spending -> more inelastic)
• short period of time (short time for consideration -> more inelastic of demand)

Question 2

characterisitcs of elastic goods

Answer 2

opposite with inelastic

• luxury
• many substitutes
• expenditure = big % of total spending
• long period

Question 3

example of elastic goods

Answer 3

mcdonald burgers

Question 4

what is perfectly elastic

Answer 4

price remains the same when quantity changes

graph horizontal

Question 5

what is perfectly inelastic

Answer 5

change in price __ no change in demand

graph vertical

Question 6

what goods are elastic

Answer 6

luxuries goods

Question 7

what goods are inelastic

Answer 7

inferior goods

Question 8

for goods that inelastic, what happen to quantity when PRICE increase by 10% (PED = -0.1)

Answer 8

quantity demanded DECREASE by 1%

Question 9

for goods that are elastic, what happen to quantity when PRICE increase by X% (PED = -2.0)

Answer 9

quantity demanded DECREASE by 2X%

Question 10

when D is elastic if INCREASE in PRICE > DECREASE in QUANTITY

Answer 10

SPENDING decrease
-> there’s large drop in quantity

Question 11

when D is elastic if DECREASE in PRICE > INCREASE in QUANTITY

Answer 11

SPENDING increase
-> large increase in QUANTITY

Question 12

when D is INelastic if INCREASE in PRICE > DECREASE in QUANTITY

Answer 12

SPENDING increase
-> quantity doesn’t fall big

Question 13

when D is INelastic if DECREASE in PRICE > INCREASE in QUANTITY

Answer 13

SPENDING decrease
-> Q rise but not very much

Question 14

def of inelastic

Answer 14

whatever size of price change
-> AS A PROPORTION -
change in Qd will be smaller