price and income elasticity of demand

Question 1

elasticity

Answer 1

measure the responsiveness of demand to a change in a relevant variable.

Question 2

price elasticity of demand

Answer 2

measure the extent to which the quantity of a product demanded is affected by a change in price

Question 3

price elasticity of demand formula

Answer 3

change in quantity / change in price

Question 4

interpretations of ped

Answer 4

price elastic - more than 1
price inelastic - less than 1
unitary price elasticity - equal to 1

Question 5

why price elasticity of demand matters

Answer 5

revenue would increase - price cut
revenue would decrease - prices increase

Question 6

Factors influencing ped

Answer 6

Price inelastic
- brand strength, necessity, habit
Price elasticity
- availability of substitutes

Question 7

income elasticity of demand

Answer 7

measures the extend to which the quantity of the product demanded is affected by change in income

Question 8

income elasticity of demand formula

Answer 8

change in quantity demanded % / change in income %

Question 9

normal good

Answer 9

which demand increases as income increases

Question 10

luxury and necessities Income elasticity

Answer 10

luxury - more than 1
necessities- less than 1 but not more than 0

Question 11

Inferior goods

Answer 11

income rises demand falls

Question 12

Limitations of calculating and using elasticities

Answer 12

• other factors affect demand
• competitors will react
• many markets subject to rapid tech change