1.2.3

Question 1

What’s the defintion of PED?

Answer 1

A numerical value of the change of responsiveness in demand to a change in price?

Question 2

What’s the definition of YED?

Answer 2

A numerical value of the change in responsiveness of demand to a change in income.

Question 3

What the defintion of XED?

Answer 3

A nunerical value of the change of responsives of good X follwing a chnage in price of good Y.

Question 4

What’ s the formula of PED?

Answer 4

%Change in Price

Question 5

What’s the formula for YED?

Answer 5

%Change in Income

Question 6

What’s the formula for XED?

Answer 6

%CHNG in Price of Good Y

Question 7

What type of elasticty of demand is there, when PED is greater than 1?

Answer 7

Relatively elastic PED.

Question 8

What type of elasticty of demand is there, when PED is between 0 and 1?

Answer 8

Relatively inelastic PED.

Question 9

What type of elasticty of demand is there, when PED is ♾️ ?

Answer 9

Perfectly elastic PED.

Question 10

What type of elasticty of demand is there, when PED is 0?

Answer 10

Perfectly inelastic PED.

Question 11

What type of elasticty of demand is there, when YED is above 1?

Answer 11

Income elastic YED.

Question 12

What type of elasticty of demand is there, when YED is below 1?

Answer 12

Income inelastic YED.

Question 13

What type of elasticty of demand is there, when YED is 0?

Answer 13

Perfectly inelastic YED.

Question 14

For YED, what type of good has a YED between 0 and 1?

Answer 14

Normal goods

Question 15

For YED, what type of good has a YED below 0?

Answer 15

Inferior goods.

Question 16

For YED, what type of good has a YED above 1?

Answer 16

A luxury good.

Question 17

For XED, what is the type of good when the XED is positive?

Answer 17

Substitute.

Question 18

For XED, what is the type of good when the XED is negative?

Answer 18

Complements.

Question 19

Name 2 factors affecting elasticities price elasticty of demand and explain how

Answer 19

Availability of substitutes
- More of them = more price elastic - consumers switch easier when price changes but depends on how close/far substitute is

Time
- Long-run = PED becomes more price elastic - consumer can switch up but depends on consumer behaviour

Question 20

Why is it siginificant for firms to know the XED of their goods in terms of changes in price to substitues and complementary goods?

*whole chain of analysis as well

Answer 20

They can react quicker to changes in price of related products.

This allows them to maximise demand for their products.

For example, if a substitue’s price changes, the firm may lower the price of their own good to reduce the impact to demand.

Question 21

Why is it siginificant for firms to know the YED of their goods in terms of changes in income?

Answer 21

They can forecast their sales if YED and possible changes to income are known.

Question 22

Why is it siginificant for the government to know the YED of goods when placing taxes and subsidies?

Answer 22

XED can be used for pricing policy for the government.

A reduction in price for a normal good, when there’s an expected faill in incomes can limit the fall in demand.

This means firms can still make a profit therefore government still has tax revenue.

Question 23

For PED, when the good has elastic demand, what happens to total revenue when there’s a reduction in price?

Answer 23

A reduction in price causes an increase in the firm’s total revenue.

Question 24

For PED, when the good has elastic demand, what happens to total revenue when there’s an increase in price?

Answer 24

An increase in price causes a decrease in the firm’s total revenue,

Question 25

For PED, when the good has inelastic demand, what happens to total revenue when there's a reduction in price?

Answer 25

A reduction in price causes a reduction in the firm's total revenue.

Question 26

For PED, when the good has inelastic demand, what happens to total revenue when there's an increase in price?

Answer 26

An increase in price causes an increase in the firm's total revenue.