price , income & cross elasticities

Question 1

Elastic

Answer 1

• very responsive = change in price = bigger change in demand
• luxury goods
• PED > 1

Question 2

inelastic

Answer 2

-unresponsive to change in price
- steep graph
- addictive + necessary goods
- PED < 1

Question 3

Unitary elastic

Answer 3

• equal change
• curved , two points are equal
• PED = 1

Question 4

price : perfectly inelastic

Answer 4

• demand doesn’t change when price does
• vertical
• PED = 0

Question 5

perfectly elastic

Answer 5

• horizontal
  PED = infinity

Question 6

Factors influencing PED

Answer 6

1) Necessity
2) Substitutes - more sub more elastic
3) Addictiveness
4)Proportion of income
if good takes up large proportion - elastic
5)brand loyalty

Question 7

if a good has an inelastic demand , the firm raises its price , quantity sold will not fall significantly. This will increase total value.

Question 8

income elasticity of demand

Answer 8

responsiveness of a change in demand to a change in income

YED = change % in quantity demand
———————————————
percentage change in income

Question 9

income elasticity helps with ?

Answer 9

businesses understand how consumers change thier spending during recessions

Question 10

FORMULA FOR PRICE ELASTICITY

Answer 10

%change in quan demanded
——————————————
%change in price

Question 11

price elasticity PED measures

Answer 11

how much quantity demanded will respond to change of price

Question 12

income elasticity FORMULA (YED)

Answer 12

% chnage in quan demanded
—————————————-
%change in income

Question 13

YED for inferior goods

Answer 13

are always negative because as income goes down demand goes up

Question 14

YED for Normal goods is

Answer 14

always positive because as income rises , demand rises

Question 15

income inelastic range

Answer 15

0-1

Question 16

income elastic range

Answer 16

1-infinity

Question 17

PED is always negative/positive ?

Answer 17

negative

Question 18

PED is always negative/positive ?

Answer 18

negative

Question 19

what does XED CROSS ELASTICITY measure

Answer 19

calculated how competing firms prices will affect demand for their products

measures how the quantity demanded for one food will respond to a change of price of another

Question 20

FORMULA FOR XED CROSS ELASTICITY

Answer 20

%change in QD of A (the affected)
——————————
%change in price of B

Question 21

the XED for complementary is :

Answer 21

negative because an increase in price for one food will decrease the demand for the other complement

Question 22

XED for substitutes is :

Answer 22

positive because a decrease in price of one good will decrease demand for a substitute

Question 23

XED = 0 means it’s unrelated goods