Price and Income elasticity of demand

Question 1

What is meant by income elasticity of demand?

Answer 1

measures the responsivness of quantity demanded for a good or service to a change in income of the people demanding the good

Question 2

What does Income elasticity measure?

Answer 2

measures the relationship between a change in QD for good x and change in real income.

Question 3

Formulae for Income elasticity of demand?

Answer 3

% change in demanded / % change in income

Question 4

Most products have….

Answer 4

Positive income elasticity

Question 5

Normal necessities have an income elasticity between…

Answer 5

0 and +1

Question 6

Luxury goods have and income elasticity between…

Answer 6

>

• 1

Question 7

What are inferior goods?

Answer 7

inferior goods are goods where demand falls as levels of income rises e.g bus journeys, labelled food etc

Question 8

What does Ped measure?

Answer 8

measures the responsiveness of demand after a change in a products price

Question 9

When is something inelastic?

Answer 9

When its less than 1 (not sensitive to change)

Question 10

When is something elastic

Answer 10

when the number is more than 1 (sensitive to change)

Question 11

What does price elasticity of demand measure?

Answer 11

measures the relationship between quantity demanded of a good and an increase in price of a good

Question 12

Benefits of elasticity in demand?

Answer 12

• can set optimum prices when elasticity is high because consumers react greatly to price change
• can predict the effects of revenue changing as price changes
• the likely price volatility in a market following changes in supply

Question 13

formula for percentage change

Answer 13

Change/original x 100