Price elasticity

Question 1

price elasticity of demand

Answer 1

the responsiveness of quantity demanded of a good or service to a change in price

Question 2

formula to calculate PED

Answer 2

percentage change in quantity demanded / percentage change in price
(Queens above Peasants)

Question 3

If PED = 0

Answer 3

perfectly inelastic- demand does not change when price changes

Question 4

If PED is between 0 and 1

Answer 4

demand is inelastic

Question 5

If PED = 1

Answer 5

demand is unit elastic

Question 6

If PED > 1

Answer 6

demand is elastic

Question 7

If PED = infinity

Answer 7

demand is perfectly elastic

Question 8

determinants of price elasticity of demand

Answer 8

(PNDBATH)
Proportion of income
Necessities
Definition
Brand loyalty
Availability of substitutes
Time
Habit-forming goods

Question 9

price x quantity sold =

Answer 9

revenue

Question 10

how to increase revenue for an inelastic product

Answer 10

increase price

Question 11

how to increase revenue for an elastic product

Answer 11

decrease price

Question 12

Usefulness of PED for producers

Answer 12

-pricing strategies of firms
-price volatility following changes in supply
-effect of a change in indirect tax

Question 13

-limitations of elasticities

Answer 13

-Problems with inaccurate or incomplete data collection
-consumer price sensitivity changes over time
-elasticity of demand varies by region/time
-rival producers will change their market strategies from time to time

Question 14

price elasticity of supply (PES)

Answer 14

PES measures the responsiveness of quantity supplied of a good or service to a change in price

Question 15

formula for PES

Answer 15

% change in Q supplied / % change in price

Question 16

PES is always …

Answer 16

positive (because of the positive relationship between price and quantity supplied)

Question 17

If PES = 0

Answer 17

perfectly inelastic

Question 18

If PES <1

Answer 18

inelastic

Question 19

If PES = 1

Answer 19

unitary elastic

Question 20

if PES >1

Answer 20

elastic

Question 21

If PES = infinity

Answer 21

perfectly elastic

Question 22

determinants of PES

Answer 22

Time
Availability of stock
Spare capacity

Question 23

YED

Answer 23

YED (income elasticity of demand) measures the responsiveness of quantity demanded of a good or service to a change in income

Question 24

formula to calculate YED

Answer 24

% change in QD / % change in Income

Question 25

What is the good if YED is positive

Answer 25

normal good

Question 26

what is the good if YED is negative

Answer 26

inferior good

Question 27

what is the good if YED is >1

Answer 27

luxury

Question 28

what is the good if YED is <1

Answer 28

necessity

Question 29

XED

Answer 29

XED (cross price elasticity of demand) measures the responsiveness of quantity demanded of good A to a change in price of good B

Question 30

formula to calculate XED

Answer 30

% change in QD of good A
/
% change in price of good B

Question 31

what are the goods if XED is positive

Answer 31

substitute goods

Question 32

what are the goods if XED is negative

Answer 32

complementary goods

Question 33

what type of relationship between goods if XED is >1

Answer 33

close relationship (e.g coco pops and milk)

Question 34

what type of relationship do the goods have if XED is <1

Answer 34

weak relationship (e.g petrol and jam)