PED, YED AND XED

Question 0

Equation for YED?

Answer 0

%change in Quantity Demanded

divided by

%change in Income

Question 1

Define YED?

Answer 1

YED is a measure of the sensitivity of the proportionate change in demand to a proportionate change in income.

Question 2

What does it mean if YED is positive?

Answer 2

The good is normal (income elastic), such as luxuries.

Question 3

What does it mean if YED is negative?

Answer 3

The good is inferior, such as tescos own brand produce.

Question 4

What does it mean if YED is zero?

Answer 4

The good is described as ‘income inelastic’, such as necessities.

Question 5

Define XED?

Answer 5

XED is a measure of the sensitivity of the proportionate change in demand to a proportionate change in price of another good.

Question 6

What does it mean if XED is positive?

Answer 6

The goods are substitutes.

Question 7

What does it mean if XED is negative?

Answer 7

The goods are complements.

Question 8

What does it mean if XED is zero?

Answer 8

The goods are independent.

Question 9

What is the equation for XED?

Answer 9

%change in Quantity Demanded of One Good

divided by

%change in Price of Another Good

Question 10

Why does a demand curve slope downwards from left to right?

Answer 10

1) substitution effect

2) income effect

Question 11

What causes a movement along a demand curve?

Answer 11

A change in the goods price.

Question 12

What causes a shift in the demand curve?

Answer 12

IPPAFEL

Question 13

What do the different values of PED mean?

Answer 13

PED>1 - good is elastic
PED<1 - good is inelastic
PED=1 - good has unit elasticity
PED=0 - perfectly inelastic
PED=infinite - good is perfectly elastic (horizontal)

Question 14

Total revenue =?

Answer 14

Price per unit of a good multiplied by the quantity sold.

Question 15

What are the 6 determinants of PED?

Answer 15

Availability of substitutes
Luxury and necessity of goods
Proportion of income spent on good
Addictive and habit forming goods
The time period
Brand image

Question 16

What does a positive YED mean?

Answer 16

It means the good is a normal good.

Question 17

What does a negative YED mean?

Answer 17

It means the good is an inferior good.

Question 18

What is XED used to determine?

Answer 18

If goods are complements (-ve XED) or substitutes (+ve XED).

Question 19

What causes movement along a supply curve?

Answer 19

A change in the goods price. (Rise in price causes extension, fall in price causes a contraction in supply)

Question 20

Define supply?

Answer 20

Supply refers to the quantity of a good or service that firms are willing to sell at a given price.

Question 21

What causes a shift in the supply curve?

Answer 21

CPPC

Question 22

Define PES?

Answer 22

PES is a measure of the responsiveness of the supply of a good to a change in the price of that good.

Question 23

Different values of PES?

Answer 23

PES>1 - good is price elastic
PES<1 - good is price inelastic
PES=1 - good is unit elastic
PES=0 good is perfectly inelastic
PES=infinite - the good is perfectly elastic (horizontal curve)

Question 24

Determinants of PES?

Answer 24

Level of space capacity
State of economy
Level of stocks of finished goods in a firm
Perishability of a product
The ease of entry into the industry
Time period under consideration

Question 25

What does equilibrium mean?

Answer 25

It means there is a balance in the market, with no tendency for price or output to change.

Question 26

What is the substitution effect?

Answer 26

When the price of a good falls it becomes comparatively cheaper compared to its substitutes so demand for that good goes up.

Question 27

What is the income effect?

Answer 27

When the price of a good falls, it’s price takes up a smaller percentage of a consumers income therefore they can buy more of that good (purchasing power increases).

Question 28

Why does a supply curve have a positive gradient?

Answer 28

As price rises it encourages firms to supply more of the good to make more profit.

As firms raise output in short run, production costs rise, and so consumers have to pay more - higher prices allow more (smaller) firms to enter the market.

Question 29

Give an example of a good that is perfectly inelastic in its supply?

Answer 29

A football match ticket at a stadium - set amount of seats so QS can not change.