Price Elasticity of Demand

Question 1

what is price elasticity of demand

Answer 1

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

Question 2

what does inelastic price elasticity of demand mean and state the inequality

Answer 2

quantity demanded responds weakly to a price change (law of demand is weak)
%change quantity < % change price
price < 1

Question 3

what is an example of an inelastic product

Answer 3

necessities like beer, wine, spirits, petrol and basic foods - not many substitutes

Question 4

what does elastic price elasticity of demand mean and state the inequality

Answer 4

quantity demanded responds to price change (law of demand is strong)
%change quantity > %change price
price> 1

Question 5

what is an example of an elastic product

Answer 5

fast foods and cars - many substitutes

Question 6

what is the point method of calculating

Answer 6

calculating elasticity from a specific point/price on curve (gives two answers whether an increase or decrease in price)

Question 7

what is the formula for the point method

Answer 7

Ed = change Q P
————— x ———————
Q Change P

Question 8

What is the midpoint method of calculating

Answer 8

an averaging technique, you are calculating elasticity along the same segment of curve

Question 9

what is the formula for the midpoint method

Answer 9

Ed = change Q Pave
————— x ———————
Qave Change P