PES, YED, XED

Question 1

income elasticity of demand

Answer 1

responsiveness of quantity demanded to a percentage change in the income of consumers

Question 2

YED equation

Answer 2

(Qn - Qo) x Yo / (Yn - Yo) x Qo

Question 3

What type of answer do you get for YED?

Answer 3

negative or positive

Question 4

YED greater than zero

Answer 4

normal good

Question 5

What are the two subsets of normal goods?

Answer 5

luxury and necessity

Question 6

YED greater than 1

Answer 6

luxury (or superior good)

Question 7

What is the one subset of luxuries?

Answer 7

Veblen goods (purchase more when price increases)

Question 8

YED between 0 and 1

Answer 8

necessity

Question 9

YED less than zero

Answer 9

inferior good

Question 10

What is the one subset of inferior goods?

Answer 10

giffen goods (purchase more as price increases)

Question 11

YED equals zero

Answer 11

consumer is satiated and doesn’t need or desire more of the good

Question 12

cross price elasticity of demand

Answer 12

measure of the response of quantity demanded of a good to a percentage change in the price of a related good

Question 13

XED equation

Answer 13

(Q1n - Q1o) x P2o / (P2n - P2o) x Q1o

Question 14

XED greater than 0

Answer 14

goods are substitutes

Question 15

XED less than 0

Answer 15

goods are complements

Question 16

XED equal to 0

Answer 16

goods are not related

Question 17

price elasticity of supply

Answer 17

measure of a producer’s response to a percentage change in the price recieved for a good/service

Question 18

PES equation

Answer 18

(Sn - So) x Po / (Pn - Po) x So

Question 19

PES greater than 1

Answer 19

price elastic

Question 20

PES less than 1

Answer 20

price inelastic

Question 21

PES equals 1

Answer 21

unitary price elasticity of supply

Question 22

Does PES vary along supply curves?

Answer 22

no - all elastic, inelastic or unitary

Question 23

perfect elasticity of supply

Answer 23

PES = undefined producers willing to produce unlimited supply of good as long as recieve certain price

Question 24

perfect inelasticity of supply

Answer 24

PES = 0 producer can only supply a finite quantity regardless of price

Question 25

Graphs for perfect cases of PES?

Answer 25

Question 26

PES determinants: time period available for production

Answer 26

more time available gives producers more time to search for cheaper substitutes or alternative technology so PES more elastic

Question 27

PES determinants: existence of spare capacity

Answer 27

factors of production not used most efficiently, easy for producers to increase output quickly so PES more elastic

Question 28

PES determinants: availability of unsold stocks (inventory)

Answer 28

more goods can easily be supplied to market so PES more elastic

Question 29

PES determinants: mobility of factors of production

Answer 29

more easily FofP can be moved from production of one good to another, more quickly quantity supplied can increase so PES more elastic

Question 30

Why does PED change along a demand curve?

Answer 30

* slope of demand curve = changeQ/changeP * PED = changeQ/changeP \* P/Q (or slope \* P/Q) * P/Q varies along a demand curve, so PED changes