PED/YED

Question 1

What is equillibrium price?

Answer 1

when the amount people want to buy is equal to the amount business want to sell.

Question 2

What is disequilibrium?

Answer 2

when the market is not at a stable price and quantity

Question 3

what happens if the market isnt at equilibrium?

Answer 3

economic pressure arises
which moves the market to a stable position

Question 4

What will excess supply cause?

Answer 4

force the producers to sell at a lower price, as its better than not selling anything

Question 5

What will excess demand cause?

Answer 5

allows producers to make more profit so they will increase prices

Question 6

3 things that occur at disequilibrium?

Answer 6

1. price change
2. output expansion from higher prices
3. excess supply causes price cuts

Question 7

what happens to demand (PED) when price increases?

Answer 7

causes demand to drop

Question 8

how does price ffect inelastic demand?

Answer 8

any price change wont effect demand

Question 9

what number would unitary price elastic be?

Answer 9

a good or service with a price elasticy of -1

Question 10

what number would a price inelastic good be?

Answer 10

a good or service with a price elasticy between 0 and -1

Question 11

what number would be a price elastic good?

Answer 11

a good or service with a price elasticy less than -1 (fe. -2,-6)

Question 12

how are addictive goods elastic?

Answer 12

addictive goods tend to be more price inelastic
because a change in price is unlikely to effact demand

Question 13

how does income effective elasticy?

Answer 13

the more income spent the more elastic a good or service is

people are more sensitve to the price of a tv than chocolate

Question 14

what happens if a good has inelastic demand?

Answer 14

the price will drop more than the quantity increases

Question 15

what happens if a good has elastic demand

Answer 15

the price will drop less than the quanity increases

Question 16

how do subsitues effect price elasticity?

Answer 16

the more subsitues avaliable the more price elastic a good is

Question 17

why do goods become price elastic if subsitutes are avaliable?

Answer 17

because its easy to find a replacemnt for a product if its price increases

Question 18

examples of INELASTIC goods?

Answer 18

1. alcohol
2. cigs
3. post seconardy education

Question 19

factors that effect elasticity of demand?

Answer 19

1. subsitutes
2. type of good
3. time
4. income

Question 20

what does a vertical line on the graph show?

Answer 20

perfectly inelatic demand

Question 21

What happens if a product is price elastic in demand?
(the relationship w revenue)

Answer 21

decreasing price = increase total revenue

increasing price = decreases total revenue

Question 22

If demand for a product is inelastic what happens to revenue

Answer 22

decreasing price = decreased revenue

Question 23

what does income elasticity of demand (YED) measure?

Answer 23

the responsiveness of quantity demanded to a change in consumer income

Question 24

What is the formula for YED

Answer 24

(% change in income)

Question 25

what does a posotive YED result mean?

Answer 25

an increase in income will causes and increase in demand

a fall in income will decrease demand

Question 26

what does a negative YED number mean?

Answer 26

an increase in income will decrease demand

a fall in income will increse demand

Question 27

what happens if the yed is less than 1?

Answer 27

it means its inelastic
a change in income leads to a change in demand which is less than the change in income

Question 28

what happens if the yed is more than 1?

Answer 28

then its elastic
and a change in income will lead to a change in quanitity demanded which is greater than the income change

Question 29

what would a luxury item be?

Answer 29

elastic