Unit 2 Elasticities of Demand

Question 1

Elasticity

Answer 1

Responsiveness of a chnage in one thing to a change in something else.

Question 2

Price Elasticity of Demand

Answer 2

Measures the responsiveness of demand after a change in price

Question 3

PED is calculated by

Answer 3

% change in quantity demanded/ % change in price

Question 4

PED=0

Answer 4

Perfectly inelastic- when price changes the QD does not change at all.

Question 4

PED= 0 to -1

Answer 4

Inelastic demand-when price changes the QD changes by a proportinally smaller amount.

Question 5

PED=-1

Answer 5

Unit elastic- when price changes the QD changes by the same percentage

Question 6

PED= -1 to -inifinity

Answer 6

Elastic demand- when price changes QD proportionally changes by a larger percentage.

Question 7

PED=- infinity

Answer 7

When price changes, the QD changes infinitely. There can only be one price.

Question 8

What will happen to a firm’s revenue?

When a firm faces inelastic demand, an increase in the price will….

Answer 8

Increase revenue

Question 9

What will happen to a firm’s revenue?

When a firm faces inelastic demand, a decrease in the price will….

Answer 9

lead to a fall in revenue

Question 10

What will happen to a firm’s revenue?

When a firm faces elastic demand, a fall in price will lead to ….

Answer 10

an increase in revenue

Question 11

What will happen to a firm’s revenue?

When a firm faces elastic demand, an increase in price will lead to ….

Answer 11

a fall in revenue

Question 12

If the good is a necessity, PED will be….

Answer 12

more inelastic

Question 12

If close substitues are available, PED will be….

Answer 12

more elastic

Question 13

If complementary products lock consumers into a deal then PED will be

Answer 13

inelastic

Question 14

If the good takes up a large proportion of a consumer’s income, the PED will be….

Answer 14

more elastic

Question 15

If consumers are addicted to the good, the PED will be…

Answer 15

closer to 0 (inelastic)

Question 16

In the short run, PED is more likely to be

Answer 16

Inelastic

Question 17

In the long run, PED is more likely to be

Answer 17

elastic

Question 18

YED stands for

Answer 18

income elasticity of demand

Question 19

Formula for calculating income elasticity of demand

Answer 19

% change in quantity demanded/ % change in income

Question 20

What is another way to think about elasticity?

Answer 20

It is how sensitive a consumer is to a change in price, income or the price of another good.

Question 20

Income elasticity of demand

Answer 20

measures the responsiveness of demand after a change in income.

Question 21

Why is it essential to use + or - signs in YED?

Answer 21

Because goods can be luxury, normal or inferior and the signs help with this.

Question 22

Luxury good

Answer 22

(Positive elastic good), when income changes, QD increases by a greater proportion.

Question 23

Normal good

Answer 23

When income changes, the QD increases by a smaller proportion. (Positive inelastic)

Question 24

Inelastic inferior good

Answer 24

When income changes the QD changes by a smaller percentage in the opposite direction.

Question 24

YED=0

Answer 24

When income changes, the QD does not change at all.

Question 25

Elastic inferior good

Answer 25

When income changes the QD changes by a larger percentage in the opposite direction.

Question 26

YED= 5

Answer 26

Luxury good

Question 27

YED= 0.5

Answer 27

Normal good

Question 28

YED= -0.5

Answer 28

Inelastic inferior good

Question 29

YED=-5

Answer 29

Elastic inferior good

Question 30

Bus transport

Answer 30

Elastic inferior good

Question 31

Basic sliced bread

Answer 31

Inelastic inferior good

Question 32

Clothing

Answer 32

Normal good

Question 33

Jewellery

Answer 33

Luxury good

Question 34

Formula to calculate XED

Answer 34

% change in QD product A / % change in price of Product B

Question 35

XED

Answer 35

Cross elasticity of demand

Question 36

Cross elasticity of demand

Answer 36

Measures the responsivness of demand for one product to a change in the price of another product.

Question 37

XED= 1 to infinity

Answer 37

Elastic substitute- when price of Product B changes, the QD of Product A changes by a larger percentage in the same direction.

Question 38

XED= 0 to 1

Answer 38

Inelastic substitute- when the price of product B changes, smaller percentage change in QD of product A. (Weak substitute)

Question 39

XED=0

Answer 39

No relationship

Question 40

XED 0 to -1

Answer 40

Inelastic complement- when the price of product B changes the QD of product A changes by a smaller percentage in the opposite direction. (Weak complements)

Question 41

XED= -1 to infinity

Answer 41

Elastic complement- when price of product B changes, the QD of product A changes by a larger percentage in the opposite direction. (Close complements).

Question 42

Coke and Pepsi

Answer 42

Elastic substitutes

Question 43

Tea and coffee

Answer 43

Weak substitutes

Question 44

Bread and butter

Answer 44

Weak complements

Question 45

Petrol and cars

Answer 45

Strong complements