1.2.3 - elasticities

Question 1

what is the formula for Price elasticity of demand?

Answer 1

% change in Q.D. / % change in price

Question 2

numerical figure to show that it is elastic demand?

Answer 2

> 1

Question 3

numerical figure to show that it is inelastic demand?

Answer 3

between 0 and 1

Question 4

numerical figure to show that it is unitary elastic?

Answer 4

1

Question 5

perfectly inelastic demand =

Answer 5

0

Question 6

perfectly elastic demand =

Answer 6

infinity

Question 7

factors that determine the PED of a product

Answer 7

• number of close substitutes available for consumers
• price of the product in relation to income
• cost of substituting between different products
• brand loyalty and habitual consumption
• degree of necessity/ luxury

Question 8

XED formula

Answer 8

% change in Q.D. of good A / % change in price of good B

Question 9

what type of demand are substitutes in?

Answer 9

competitive demand

Question 10

what type of demand are complements in?

Answer 10

joint demand

Question 11

is the value of XED for substitutes positive or negative?

Answer 11

positive

Question 12

what is the XED value for substitutes?

Answer 12

> 0

Question 13

what happens to demand in relation to two substitutes?

Answer 13

as demand for one rises, demand for the other falls

Question 14

is the XED value for complements positive or negative?

Answer 14

negative

Question 15

what is the XED value for complements?

Answer 15

< 0

Question 16

what happens to the demand for complements in relation to each other?

Answer 16

as demand for one rises, demand for the other one also rises

Question 17

what happens to the demand for close substitutes?

Answer 17

when there is a small rise in price of X this causes a large rise in demand for Y

Question 18

what happens to the demand for weak substitutes?

Answer 18

A large rise in price of X leads to a small increase in demand for Y

Question 19

what happens to the demand for close complements?

Answer 19

when there is a small fall in price of X this causes a large rise in demand for Y

Question 20

what to happens to the demand for weak complements?

Answer 20

a large drop in price of X causes only a small rise in demand for Y

Question 21

is the demand curve for substitutes upward or downward sloping?

Answer 21

downward sloping

Question 22

is the demand curve for complements upward or downward sloping?

Answer 22

upward sloping

Question 23

YED formula

Answer 23

% change in Q.D / % change in real income

Question 24

what type of income elasticity do normal goods have?

Answer 24

positive (YED = >0)

Question 25

what is the income elasticity for luxury goods?

Answer 25

> +1

Question 26

what is the income elasticity for necessities?

Answer 26

> 0 and < +1

Question 27

what type of income elasticity do inferior goods have?

Answer 27

negative (YED = < 0)

Question 28

why are inferior goods counter cyclical goods?

Answer 28

demand rises in a recession but demand falls during a boom

Question 29

for inferior goods what happens to demand as incomes increase?

Answer 29

as income increases less of the good is demanded

Question 30

for normal goods what happens to demand as income increases?

Answer 30

as income increases more of the good is demanded

Question 31

are normal necessities income elastic or inelastic?

Answer 31

income inelastic

Question 32

are normal luxuries income elastic or inelastic?

Answer 32

income elastic

Question 33

when demand is inelastic who has to pay more tax?

Answer 33

consumers

Question 34

when demand is elastic who has to pay more tax?

Answer 34

producers/suppliers

Question 35

when subsidies are given in inelastic demand who has less gain?

Answer 35

producers gain less, consumers gain more

Question 36

when subsidies are given in elastic demand who has less gain?

Answer 36

consumers gain less, producers gain more