TOPIC 3 - ELASTICITY

Question 1

WHAT IS PED?

Answer 1

THE RESPONSIVENESS OF DEMAND TO A CHANGE IN PRICE.

Question 2

WHAT IS PED AND ITS DETERMINANTS?

Answer 2

1. NECESSITY
2. ADDICTIVENESS
3. SUBSTITUTES
4. TIME
5. INCOME
6. QUALITY
7. BRAND LOYALTY

Question 3

WHY DOES A FIRM WANT TO KNOW THEIR PED?

Answer 3

SALES FORECASTING
PRICE STATEGY

Question 4

HOW CAN A FIRM REDUCED THEIR PED?

Answer 4

INCREASE PRODUCT DIFFERENTIATION
BUILD A BRAND
HORIZONTAL INTEGRATION

Question 5

WHAT ARE THE DETERMINANTS OF PES?

Answer 5

1. FACTOR MOBILITY
2. INVENTORY
3. LENGTH OF PRODUCTION
4. SPARE CAPACITY
5. SKILLS REQUIRED
6. TECHNOLOGY
7. MIGRATION

Question 6

WHAT IS ELASTIC DEMAND?

Answer 6

DEMAND IS RESPONSIVE TO A CHANGE IN PRICE. ANY CHANGE IN PRICE LEADS TO A GREATER PERCENTAGE DECREASE IN QUANTITY DEMANDED.

Question 7

WHAT FIGURE REPRESENTS ELASTIC DEMAND?

Answer 7

PED OF LESS THAN -1

Question 8

WHAT IS INELASTIC DEMAND?

Answer 8

DEMAND IS NOT VERY RESPONSIVE TO A CHANGE IN PRICE. ANY CHANGE IN PRICE LEADS TO A SMALLER PERCENTAGE CHANGE IN QUANTITY DEMANDED.

Question 9

WHAT FIGURE REPRESENTS INELASTIC DEMAND?

Answer 9

PED IS GREATER THAN 1 BUT LESS THAN 0.

Question 10

WHAT IS UNITARY ELASTICITY?

Answer 10

PERCENTAGE CHANGE IN QUANTITY DEMANDED EQUALS PERCENTAGE CHANGE IN PRICE.

Question 11

WHAT FIGURES REPRESENTS UNITARY ELASTICITY?

Answer 11

PED OF 1 FOR PES
PED OF -1 FOR PED

Question 12

HOW DO YOU WORK OUT REVENUE?

Answer 12

PRICE x QUANTITY

Question 13

WHAT DOES PERFECTLY ELASTIC DEMAND MEAN?

Answer 13

PED IS INFINITELY NEGATIVE. PURCHASERS WON’T BUY ANY PRODUCT ABOVE A CERTAIN PRICE.

Question 14

WHAT DOES PERFECTLY INELASTIC DEMAND MEAN?

Answer 14

PED IS 0 AS THE SAME AMOUNT IS DEMANDED WHATEVER THE PRICE.

Question 15

WHAT IS PES?

Answer 15

RESPONSIVENESS OF SUPPLY TO A CHANGE IN PRICE.

Question 16

WHAT IS INCOME ELASTICITY OF DEMAND?

Answer 16

RESPONSIVENESS OF DEMAND TO A CHANGE IN INCOME.

Question 17

WHAT IS THE YED OF NORMAL GOODS THAT ARE NECESSITIES?

Answer 17

WOULD HAVE INCOME ELASTICITIES CLOSER TO 0.

Question 18

WHAT IS THE YED OF NORMAL GOODS THAT ARE LUXURIES?

Answer 18

WOULD HAVE INCOME ELASTICITIES WITH HIGHER NUMERICAL VALUES.

Question 19

WHAT WOULD BE THE YED OF INFERIOR GOODS?

Answer 19

NEGATIVE INCOME ELASTICIES OF DEMAND AS A RISE IN INCOME WOULD LEAD TO A FALL IN DEMAND.

Question 20

WHAT IS CROSS ELASTICITY OF DEMAND?

Answer 20

RESPONSIVENESS OF DEMAND FOR 1 PRODUCT TO A CHANGE IN PRICE OF ANOTHER PRODUCT.

Question 21

WHAT IS THE XED FOR SUBSTITUTES?

Answer 21

POSITIVE CROSS ELASTICITY AS A RISE IN THE PRICE OF 1 PRODUCT WILL RAISE DEMAND FOR THE OTHER PRODUCT.

Question 22

WHAT IS THE XED FOR COMPLEMENTS?

Answer 22

COMPLEMENTS OR PRODUCTS THAT ARE IN JOINT/DERIVED DEMAND HAVE NEGATIVE CROSS ELASTICITY AS A RISE IN THE PRICE OF 1 PRODUCT WOULD REDUCE THE DEMAND FOR THE OTHER PRODUCT.

Question 23

WHAT IS THE XED FOR UNRELATED PRODUCTS?

Answer 23

0

Question 24

WHAT IS THE EQUATION FOR PED?

Answer 24

Ped = %🔺️ Quantity demand ÷ %🔺️ price

Question 25

WHAT IS PES?

Answer 25

PES = %🔺️ Quantity demanded ÷ %🔺️ price

Question 26

WHAT IS YED?

Answer 26

YED = %🔺️ Quantity demanded ÷ %🔺️ income

Question 27

WHAT IS THE EQUATION OF XED?

Answer 27

XED = %🔺️ Quantity demanded for X ÷ %🔺️ Price of Y