Theme 1 Topic 13 - Elasticity

Question 1

What are seven factors affecting the demand for a product?

Answer 1

Quality, Price, Income, Tastes/trends, Substitutes, Complimentary goods, Advertising

Question 2

Define Price Elasticity of Demand

Answer 2

Loos at how demand responds to changes in price - expressed as a %

Question 3

Price Elasticity of Demand =

Answer 3

% Change in Demand/% Change in Price

Question 4

If demand is very responsive (elastic) to price, the PED figure will be…

Answer 4

Bigger than 1

Question 5

If demand is not very responsive (inelastic) to price, the PED figure will be…

Answer 5

Less than 1

Question 6

What are three factors influencing price elasticity?

Answer 6

Type of product, Competition, Brand image

Question 7

If a product is elastic, what will happen to revenue if price decreases?

Answer 7

Revenue could increase as it may increase sales

Question 8

If a product is inelastic, what will happen to revenue if price decreases?

Answer 8

Revenue will decrease as the same amount of the product would be sold for a lower price

Question 9

Define Price Inelastic Demand

Answer 9

The % change in demand is smaller than the % change in price

Question 10

What are two problems with using price elasticity?

Answer 10

Many other factors influence demand not just price, The value of price elasticity is an estimate

Question 11

Define Income Elasticity of Demand

Answer 11

Looks at how demand responds to changes in income - expressed as a %

Question 12

Income Elasticity of Demand =

Answer 12

% Change in Quantity Demanded/% Change in Price

Question 13

If demand is very responsive (elastic) to income, the YED figure will be…

Answer 13

Bigger than 1.5 - it is a luxury good

Question 14

Define Luxury Good

Answer 14

A product with a YED above 1.5

Question 15

If demand is not very responsive (inelastic) to income, the YED figure will be…

Answer 15

Less than 1.5 - it is a normal good

Question 16

Define Normal Good

Answer 16

A product with a YED between 0.1 and 1.5

Question 17

If demand falls while income rises, the YED figure is…

Answer 17

A minus - it is an inferior good

Question 18

Define Inferior Good

Answer 18

A product with an income elasticity which is negative

Question 19

What is a factor influencing income elasticity?

Answer 19

Whether the product is a necessity, luxury or inferior good

Question 20

What are three reasons income elasticity is important for businesses?

Answer 20

Helps plan ahead by forecasting economic growth, Can set sales budgets and plan to accommodate this, Producers of inferior goods can diversify their range in a recession

Question 21

Define Price Elastic

Answer 21

Where demand is sensitive to changes in price

Question 22

Define Price Inelastic

Answer 22

Where demand is not very sensitive to changes in price

Question 23

Define Income Elastic

Answer 23

Where demand is sensitive to changes in income

Question 24

Define Income Inelastic

Answer 24

Where demand is not very sensitive to changes in income

Question 25

Define Recession

Answer 25

Two or more quarters of negative economic growth