Elasiticty

Question 1

Explain and Calculate PeD

Answer 1

PeD is the responsiveness of Quantity demanded, due to a change in the price

PeD = %changeQD / %changeP

Question 2

Explain the units of PeD

Answer 2

Elastic = 1<
Inelastic = 1>
Unitary Elastic = 1
Perfectly Inelastic = 0

Question 3

Explain and Calculate YeD

Answer 3

YeD is the responsiveness of quantity demanded due to a change in income

YeD = %changeQD / %changeY

Question 4

Explain the units of YeD

Answer 4

Inferior Goods = Demand shrinks as income rises

Normal Goods = Demand rises as income rises

Luxury goods = An increase in income leads to a large increase in demand

Question 5

Explain and calculate XeD

Answer 5

XeD is the responsivness of a change in demand in one good in relation to a price change of another.

XeD = %changeQD of good Y / %change P of good X

Question 6

Explain the units of XeD

Answer 6

+ve = Substitute good
-ve = Complementary good

Question 7

Explain and Calculate PeS

Answer 7

PeS is the responsivness of a change in supply due to a change in price

PeS = %changeQS / %changeP

Question 8

Evaluate the factors which determine the value of PeD

Answer 8

Neccesity:
* Goods that people see as a necessity will have an inelastic demand, this is because no matter how high the price, consumers will still feel as though it is needed, E.G. Electricity. Luxury goods however,such as sports cars are more inelastic, as they are not a neccessity.

Substitutes:
* If a good has a large amount of substitutes, then the goods demand will be relitavely elastic, as consumers will look elsewhere if they see it as too expensive.
* The closer and more availiable the substitutes the more elastic the good becomes

Addictivness:
* If a good is addivctive, E.G. Smoking, then it is very likely that it will be inelastic in nature, as people will keep on paying for hteir habits and addictions, no matter how high the price.

Proportion of Income spent on the good:
* If a good only takes up a small percentage of a persons disposable income, then it is likley to be inelastic, as a change will not make a large difference. And opposite for higher paying goods (E.g. Car vs magazine)

Peak and off-peak demand:
* E.G. Train times, tickets are inelastic as people will pay for the time

Question 9

Evaluate the factors which determine the value of YeD

Answer 9

• Inferior
  
  • Normal
  • Luxury
  • Time - new goods may have become available since the last income increase.

Question 10

Evaluate the factors which determine the value of XeD

Answer 10

• Unrelated Good
  
  • Substitute
  • Complementary