Unit 1 -Chapter 6

Question 1

Elasticity

Answer 1

The proportionate responsiveness of a second variable to an initial proportionate change in the first variable.

Question 2

Formula - price elasticity of demand

Answer 2

PED
= 
proportionate change in quantity demanded
/
proportionate change in price

Question 3

Formula - price elasticity of supply

Answer 3

PES
=
proportionate change in quantity supplied 
/
proportionate change in price

Question 4

Formula - income elasticity of demand

Answer 4

IED 
=
proportionate change in quantity demanded 
/
proportionate change in income

Question 5

Formula - cross-elasticity of demand for good A with respect to the price of good B

Answer 5

CED 
=
proportionate change in quantity of A demanded 
/
proportionate change in price of B

Question 6

Price elasticity of demand

Answer 6

The proportionate change in demand for a good following an initial proportionate change in the good’s own price.

Question 7

PED = infinity

Answer 7

Perfectly elastic demand

Question 8

PED > 1

Answer 8

Elastic demand

Question 9

PED = 1

Answer 9

Unit elastic demand

Question 10

PED < 1

Answer 10

Inelastic demand

Question 11

PED = 0

Answer 11

Perfectly inelastic demand

Question 12

Diagram shape - perfectly elastic demand?

Answer 12

Horizontal

Question 13

Diagram shape - elastic demand?

Answer 13

Shallow, downwards

Question 14

Diagram shape - unit elastic demand?

Answer 14

Concave

Question 15

Diagram shape - inelastic demand

Answer 15

Steep, downwards

Question 16

Diagram shape - perfectly inelastic demand?

Answer 16

Vertical

Question 17

Price elasticity of supply

Answer 17

The proportionate change in supply of a good following an initial proportionate change in the good’s own price.

Question 18

PES = infinity

Answer 18

perfectly elastic supply

Question 19

PES > 1

Answer 19

Elastic supply

Question 20

PES = 1

Answer 20

Unit elastic supply

Question 21

PES < 1

Answer 21

Inelastic supply

Question 22

PES = 0

Answer 22

Completely inelastic supply

Question 23

Diagram shape - perfectly elastic supply

Answer 23

Horizontal

Question 24

Diagram shape - elastic supply

Answer 24

Shallow, upwards

Question 25

Diagram shape - unit elastic supply

Answer 25

Passes through origin

Question 26

Diagram shape - inelastic supply

Answer 26

Steep, upwards

Question 27

Diagram shape - perfectly inelastic supply

Answer 27

Vertical

Question 28

Factors determining price elasticity of demand

Answer 28

1) Substitutability
2) Percentage of income
3) Necessities or luxuries
4) The ‘width’ of the market definition
5) Time

Question 29

Factors determining price elasticity of supply

Answer 29

1) Length of production period
2) Availability of spare capacity
3) Ease of accumulating stocks
4) Number of firms in the market and the ease of entering the market

Question 30

Cross-elasticity of demand

Answer 30

The proportionate change in demand following an initial proportionate change in the price of another good.

Question 31

Income elasticity of demand

Answer 31

The proportionate change in demand for a good following an initial proportionate change in consumers’ income.

Question 32

Joint demand

Answer 32

Complementary goods, negative cross-elasticity of demand E.G computer games and games consoles

Question 33

Competing demand

Answer 33

Substitutes, positive cross-elasticity of demand E.G. apples and oranges

Question 34

No discernible demand relationship

Answer 34

2 random goods, cross-elasticity of demand = zero