PED, YED & XED

Question 1

Price elasticity of demand

Answer 1

Price elasticity of demand is a measure of how the quantity demanded of a good responds to a change in its price.

Question 2

Formula of PED

Answer 2

PED= %Δ Qd / %∆P

Question 3

Elastic demand

Answer 3

PED > 1

A %∆ in price will cause a greater %∆ in Qd.

Question 4

Perfectly elastic demand

Answer 4

PED of ±∞ and any increase in price will cause demand to fall to zero.

Question 5

Inelastic demand

Answer 5

0 < PED < 1

A %∆ in price will cause a smaller %∆ in Qd.

Question 6

Perfectly inelastic demand

Answer 6

PED = 0 and any change in price will have no effect on the Qd.

Question 7

Unit elasticity of demand

Answer 7

PED = ±1
The size of the %∆ in price is equal to the size of the %∆ in Qd.
%∆P = %∆Qd.

Question 8

Income elasticity of demand

Answer 8

Income elasticity of demand measures how much the demand for a good changes with a change in real income.

Question 9

Income elastic

Answer 9

YED > 1

Question 10

Income inelastic

Answer 10

YED < 1

Question 11

Income perfectly inelastic

Answer 11

YED = 0, no matter how high incomes rise, demand remains constant.

Question 12

Formula of YED

Answer 12

YED= %∆Qd/%∆Y

Question 13

Cross elasticity of demand

Answer 13

Cross elasticity of demand is a measure of how the quantity demanded of one good responds to a change in the price of another good.

Question 14

XED +ve & -ve

Answer 14

Substitutes = +ve 
Complements = -ve