PED AND PES, YED,XED

Question 1

income elasticity of demand (YED)

Answer 1

(YED) measures the responsiveness of quantity demanded to a change in income.

Question 2

price elasticity of supply (PES)

Answer 2

refers to how responsive quantity supplied is to a change in price

Question 3

cross elasticity of demand (XED)

Answer 3

measures the responsiveness of quantity demanded for good X following a change in the price of good Y

Question 4

PES formula

Answer 4

PES =
% Change in Qs / % Change in Price

AND SAY THE REST OUT LOUD

Question 5

YED formula

Answer 5

YED =
% Change in Qd/ % Change in Y (income)

AND SAY THE REST OUT LOUD

Question 6

XED formula

Answer 6

XED =
% Change in Quantity Demanded of Good Y÷ % Change in Price of Good X

AND SAY THE REST OUT LOUD!

Question 7

interpreting PES

ignore the sign

Answer 7

when interpreting PES, we ignore the sign bc there is a positive relationship between quantity supplied and price

Question 8

interpreting YED

both positive and negative

Answer 8

to interpret YED, remember that normal goods have a positive relationship with income meaning that when income increases, so does demand, whereas with inferior goods, there is a negative relationship with income meaning that when income increases demand for that good decreases.

Question 9

interpreting XED

Answer 9

XED is used to determine whether goods are substitutes or complements.
A positive XED indicates that the good is a substitute i.e.
a negative XED indicates that the good is a complement.

Question 10

substitute

Answer 10

if the demand for one product increases when the price of the other goes up.

Question 11

elastic supply

graph gentle

Answer 11

where the change in quantity supplied is greater than the change in price

PES > 1

Question 12

inelastic supply

graph steep

Answer 12

where the change in quantity supplied is less than the change in price

PES < 1

Question 13

unit elastic supply

graph dip

Answer 13

where changes in quantity supplied are equal to changes in price

PES= 1

Question 14

totally inelastic supply

graph straight down

Answer 14

where supply is completely unresponsive to changes in price

PES= 0

Question 15

totally elastic supply

graph straight across

Answer 15

where supply is radically responsive to changes in price

PES= infinity

Question 16

Factors affecting XED

Answer 16

1) if consumers have brand loyalty for a good, then XED for substitute goods r low

2) successful advertising can sway consumers choice by making a brand appear unique, this results in a low XED to OTHER substitutes.

3) if the two goods hv no relationship, then XED= 0

Question 17

Factors affecting YED

Answer 17

1) the degree of necessity of the good.

2) the rate at which the desire for the good is satisfied as consumption increases.

3) the availability of substitute goods

4) the proportion of income spent on the good or service

5) the level of income of consumers.

Question 18

Factors affecting PES

Answer 18

1) time- the more time the supplier has, the greater the PES. as if costs of production increase the consumer will have no time to incease production as the producer will not have enough time to arrange more labour and raw materials

**2) the lower the degree of capacity utilisation, the more elastic is supply

3. whether it is for the long run or short run, more elastic in short run**
4. Gestation period- such as vintage wine, has a gestation period until it can be offered for sale. As it takes a while to ferment, if the price changes quantity supplied cannot change immediately. Things like computer parts hv no gestation period, and their pes is elastic

Question 19

Factors affecting PED

Answer 19

1. Time- as price increases PED tends to be greater as more time elapses
   consumer have more time to serach for substitutes
2. Income, specifically if the proportion of income given up to purchase the good is high then PED is high
3. Addiction- the more addictive a product the smaller the PED

Number of substitutes immediately available- the greater numbe rof substitutes available, the higher the PED