Theme 1 - 1.2.4 - PED - 1.2.5 - YED

Question 1

Whats the formula for PED ?

Answer 1

% Change in Quantity demanded / % change in price

We have to make another calculation to find the % change in quantity demanded etc

Question 2

Whats the change in price formula ( perc difference )

Answer 2

Price new - Price old / Price old x 100

Question 3

PED is always …

Answer 3

A minus

Question 4

What does elastic demand mean ?

Answer 4

Demand for the product is sensitive to a change in price

Question 5

What happens if the PED score is more than 1 ?

Answer 5

Then that means that the product has an elastic demand

Question 6

What does inelastic demand mean ?

Answer 6

It means that there will be very little change in demand with a change in price

Question 7

What happens if the PED value is between 0 and 1 ?

Answer 7

Then that means that the product has an inelastic demand

Question 8

What happens to the demand when a market has a large number of available substitutes ?

Answer 8

This means that the demand is more sensitive to price meaning that little tweaks in the price can effect the demand a lot - so if there are a lot of substitutes then the demand for the product is sensitive to price as consumers can just easily switch to another product as it heads a lot of substitutes - meaning that the product is more price elastic

Question 9

What does frequency of purchase mean for the demand for a product ?

Answer 9

Products that are bought frequently by consumers tend to be very elastic - sensitive to price meaning that if the price goes up for a product that you frequently buy then you would switch to an alternative and this is because if you always buy fairy liquid for e..g and it goes up in price then you would switch to by Sainsbury’s liquid and this is because you buy the other liquid in knowledge that you will come back another week and the fairy liquid might go back to the normal price

Question 10

How is the demand for necessities different for demand for other products ?

Answer 10

Necessities have lower price elasticises - so more inelastic as consumers must purchase the product despite price changes

For example petrol is a necessity which means that consumers need to keep buying petrol even if the price increases - which means that the product is very price inelastic

Question 11

What is YED ?

Answer 11

Income elasticity of demand

Question 12

Whats the YED formula ?

Answer 12

% change in quantity demanded / % change in income

Question 13

Whats the YED value for inferior, normal and luxury ?

Answer 13

Inferior - YED value below 0 - so its negative
Normal - YED value between 0 and 1
Luxury - YED value bigger than 1

Question 14

What is YED used for ?

Answer 14

It is a calculation used by businesses to estimate how demand will change in response to changes in income - As consumer income change - up or down - so do demands

So a business can measure how much demand for a product will be affected by a change in a consumers income

Question 15

What are normal ( necessity ) goods ?

Answer 15

Normal goods are those for which demand increase when income increases

A good is normal when consumers demand more as their income increases

The YED value for normal products is between 0 and 1 - for example the YED value for Kelloggs cornflakes might be 0.4

Question 16

What are inferior goods ?

Answer 16

Inferior goods are products where demand decreases as income increases because when you start making more money you wont want to be buying for example pot noodle for lunch you- you would want to settle for something better

The YED value for an inferior good is less than zero so the value would be negative

Question 17

What are Luxury goods ?

Answer 17

A luxury good is when an increase in income causes a larger increases in demand

So the main thing to differentiate a luxury product from a normal product is that a luxury product has a YED value of more than 1

Question 18

What are some factors that influence YED ?

Answer 18

An increase in income will mean an increase in the demand for luxury goods - for e.g. if you get a pay rise you might want to buy a luxury watch

An increase in income will lead to an increase in demand of normal goods - this is because if you earn more money then you could buy more products that you need

An increase in income will lead to a fall in demand for inferior goods - this is because when your earn more money - you dont want to keep on buying by Sainsbury’s cornflakes and you might want to get Kellogg

Question 19

What are the uses of YED ?

Answer 19

YED is used by business to help them decide what products and services they should offer in order to increase sales

For example, Poundland specialises in inferior goods - in negative YED products

Poundland