2.2 ELASTICITY

Question 1

Define PED

Answer 1

the degree of responsiveness of the quantity demanded of a product when there are changes in its price

Question 2

PED formula

Answer 2

% change in quantity/% change in price

Question 3

interpretation of PED

Answer 3

if ped is -x it means a 1% increase in the price will lead to an x% decrease in quantity demanded

Question 4

interpretation of PED

Answer 4

if ped is -x it means a 1% increase in the price will lead to an x% decrease in quantity demanded

Question 5

define YED

Answer 5

degree of responsiveness of the quantity demanded of a product when there is a change in income

Question 6

formula for YED

Answer 6

% change in quantity demanded/ % change in income

Question 7

YED of luxury

Answer 7

• YED>1
• income elastic
• flatter upward sloping engle curve

Question 8

YED of necessity

Answer 8

• between 1 and 0
• income inelastic
• steeper upward sloping engle curve

Question 9

YED of inferior goods

Answer 9

• YED<0
• downward sloping engle curve

Question 10

define PES

Answer 10

degree of responsiveness of the quantity supplied of a product when there is a change in its price

Question 11

PES formula

Answer 11

% change in supply / % change in price