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

WHAT ARE THE DETERMINANTS OF PES?

Answer 3

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

Question 4

WHAT IS ELASTIC DEMAND?

Answer 4

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

Question 5

WHAT FIGURE REPRESENTS ELASTIC DEMAND?

Answer 5

PED OF LESS THAN -1

Question 6

WHAT IS INELASTIC DEMAND?

Answer 6

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

Question 7

WHAT FIGURE REPRESENTS INELASTIC DEMAND?

Answer 7

PED IS GREATER THAN -1 BUT LESS THAN 0.

Question 8

WHAT IS UNITARY ELASTICITY?

Answer 8

PERCENTAGE CHANGE IN QUANTITY DEMANDED EQUALS PERCENTAGE CHANGE IN PRICE.

Question 9

WHAT FIGURES REPRESENTS UNITARY ELASTICITY?

Answer 9

PED OF 1 FOR PES
PED OF -1 FOR PED

Question 10

HOW DO YOU WORK OUT REVENUE?

Answer 10

PRICE x QUANTITY

Question 11

WHAT DOES PERFECTLY ELASTIC DEMAND MEAN?

Answer 11

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

Question 12

WHAT DOES PERFECTLY INELASTIC DEMAND MEAN?

Answer 12

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

Question 13

WHAT IS PES?

Answer 13

RESPONSIVENESS OF SUPPLY TO A CHANGE IN PRICE.

Question 14

WHAT IS INCOME ELASTICITY OF DEMAND?

Answer 14

RESPONSIVENESS OF DEMAND TO A CHANGE IN INCOME.

Question 15

WHAT IS THE YED OF NORMAL GOODS THAT ARE NECESSITIES?

Answer 15

WOULD HAVE INCOME ELASTICITIES CLOSER TO 0.

Question 16

WHAT IS THE YED OF NORMAL GOODS THAT ARE LUXURIES?

Answer 16

WOULD HAVE INCOME ELASTICITIES WITH HIGHER NUMERICAL VALUES.

Question 17

WHAT WOULD BE THE YED OF INFERIOR GOODS?

Answer 17

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

Question 18

WHAT IS CROSS ELASTICITY OF DEMAND?

Answer 18

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

Question 19

WHAT IS THE XED FOR SUBSTITUTES?

Answer 19

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

Question 20

WHAT IS THE XED FOR COMPLEMENTS?

Answer 20

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 21

WHAT IS THE XED FOR UNRELATED PRODUCTS?

Answer 21

0

Question 22

WHAT IS THE EQUATION FOR PED?

Answer 22

Ped = %🔺️ Quantity demand ÷ %🔺️ price

Question 23

WHAT IS PES?

Answer 23

PES = %🔺️ Quantity demanded ÷ %🔺️ price

Question 24

WHAT IS YED?

Answer 24

YED = %🔺️ Quantity demanded ÷ %🔺️ income

Question 25

WHAT IS THE EQUATION OF XED?

Answer 25

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

Question 26

WHAT ARE EXAMPLES OF GOODS WITH INELASTIC PED?

Answer 26

1. CIGARETTES
2. WATER
3. APPLE PRODUCTS

Question 27

WHAT ARE EXAMPLES OF GOODS WITH ELASTIC PED?

Answer 27

1. SOFT DRINKS

Question 28

WHAT ARE EXAMPLES OF GOODS WITH INELASTIC PES?

Answer 28

1. STRAWBERRIES ( LOW INVENTORY)
2. DOCTORS ( HIGH BARRIERS TO ENTRY)
3. ELECTRIC CARS ( LACK OF RAW MATERIALS)

Question 29

WHAT ARE EXAMPLES OF GOODD WITH ELASTIC PES?

Answer 29

1. WAITERS (HIGH FACTOR MOBILITY)
2. ELECTRICITY ( SPARE CAPACITY)
3. DIGITAL DOWNLOADS E.G SONGS ( PERFECTLY ELASTIC)