lesson 9

Question 1

what is revenue?

Answer 1

the total amount of income generated by the sale of goods and services
the money coming in

Question 2

equation for revenue

Answer 2

price times quantity

Question 3

what does the elasticity of demand show?
(not what PED is but what does it show happening to the change in demand)

Answer 3

how sensitive demand is

Question 4

what is PED?

Answer 4

price elasticity of demand measures a consumers responsiveness to a change in a goods own price

firms are very interested in what happens to demand for their products should the price change

Question 5

what does elasticity measure?

Answer 5

the proportionate responsiveness of the second variable to the change in the first.

whenever a change in one variable causes a changes to occur in a second variable an elasticity can be calculated

Question 6

characteristics of an elastic change

Answer 6

sensitive
big
noticeable
even with a small price change there will be a large change in demand meaning there are substitutes available

Question 7

characteristics of an inelastic change

Answer 7

insensitive
not much changes

Question 8

if a change in price were to be matched by an exactly proportionate change in demand, demand would not be elastic or inelastic it would be…

Answer 8

unitary

Question 9

PED equation

Answer 9

% change in quantity demanded
/////////////////////////////////////////
% change in price

Question 10

when calculating PED is it always positive or negative?

Answer 10

negative
(demand curve has a negative relationship with price)

Question 11

numerically how do we know is PED is insensitive?

Answer 11

if its less than one

Question 12

numerically how do we know is PED is sensitive?

Answer 12

if its more than one

Question 13

four reasons why elasticity varies

Answer 13

1. substitutability
2. percentage of income used
3. time
4. width of market

Question 14

in terms of elasticity what does substitutability impact?

Answer 14

if there is choices, so close substitutes, it will lead to an elastic demand in our own good as people are able to find cheaper alternatives

Question 15

in terms of elasticity what does percentage of impact used impact?

Answer 15

expensive goods that take up a lot of your income will tend to be more elastic

Question 16

in terms of elasticity what does time impact?

Answer 16

demand for goods and services is more elastic in the long run than in the short run because it takes time to respond to a price change

Question 17

in terms of elasticity what does width of the market impact?

Answer 17

if we consider one firm demand will be highly elastic but when we consider the whole market then demand will be more inelastic

Question 18

why do firms hate elastic demand?

Answer 18

implies that customers have choices and will leave if they raise prices too high

Question 19

if firms have inelastic demand its good because…

Answer 19

they can raise prices without losing customers and with the rising prices their total revenue also increases

Question 20

high season/peak flow diagram with demand

Answer 20

high season —> inelastic demand —> put up prices

Question 21

low season flow diagram with demand

Answer 21

low season —> elastic demand —> put prices down as it is now in the hands of the consumers as they have CHOICES

Question 22

what is the best thing to do when demand is elastic?

Answer 22

cut prices to boost demand and total revenue

Question 23

what does it mean if a firm differentiates their product from the competition?

Answer 23

brand loyalty

Question 24

how can a firm increase demand for their product?

Answer 24

changing the prices
updating the product
increasing the quality of the product
promotions
place (where they put them)

Question 25

what is creative destruction?

Answer 25

new product destroys demand for other products

Question 26

if demand is elastic and price falls what happens?

Answer 26

price falls
demand increases
total revenue increases

Question 27

if demand is inelastic and price falls what happens?

Answer 27

price falls
demand decreases
total revenue decreases

Question 28

if demand is elastic and price rises what happens?

Answer 28

price rises
demand falls
total revenue increases

Question 29

if demand is inelastic and price rises what happens?

Answer 29

prices rises
demand falls
total revenue rises

Question 30

in an economy its only productive when?

Answer 30

it is operating on its production possibility curve

Question 31

what is likely to happen when money is used as a medium of exchange?

Answer 31

trade is likely to increase