2.6 Elasticity

Question 1

What is Elasticity?

Answer 1

A measure of the responsiveness of one economic variable to another.

Question 2

What is Elasticity of Demand?

Answer 2

Measures the amount that the quantity demanded of a good changes in response to changes in price or income.

Question 3

What is price elasticity of demand?

Answer 3

Measure’s how much a change in price will change the amount of a good a consumer will demand.

Question 4

What is something called when you are unlikely to change your demand for something?

Answer 4

Price Inelastic.

Question 5

What is something called when your demand is willing to change?

Answer 5

Price elastic.

Question 6

What main two factors help determine price elasticity?

Answer 6

(1) The availability of substitutes.

(2) Whether its a Luxury/Necessity

Question 7

If the demand curve is steep will it be price elastic or inelastic?

Answer 7

Elastic

Question 8

If the demand curve is flatter will it be price elastic or inelastic?

Answer 8

Elastic

Question 9

What is the Equation for PED?

Answer 9

Change in QD% / Change in P%

Question 10

How do you work out % change?

Answer 10

New Value-Old Value/Old Value then times that by 100 to get %

Question 11

If PED is greater than 1 it is…?

Answer 11

Elastic

Question 12

If PED is Less than 1 it is…?

Answer 12

Inelastic.

Question 13

At the top of the demand curve it is…?

Answer 13

Elastic

Question 14

At the bottom of the demand curve it is…?

Answer 14

Inelastic.

Question 15

What would a tax do if a product was inelastic?

Answer 15

The tax will end up being paid by the consumer and not the firm, e.g. Cigarettes.

Question 16

What would a tax do if a product was elastic?

Answer 16

Producers may choose to include the tax in their own costs.

Question 17

What are Subsidies?

Answer 17

Funds given to firms to produce certain goods, e.g. EU farmers.

Question 18

What is the goal of a subsidy?

Answer 18

To shift supply to the right.

Question 19

What would the Subsidy do if the product had a highly inelastic PED?

Answer 19

Shift to the right to supply means price will fall. but quantity only increases slightly.

Question 20

What would the Subsidy do if the product had a highly elastic PED?

Answer 20

The Subsidy would lead to a large increase in quantity produced but a smaller fall in price.

Question 21

What does YED actually measure?

Answer 21

How much you will change your spending by.

Question 22

What is a Formula for YED?

Answer 22

Change in QD / Change in Income.

Question 23

What does the demand for normal goods increase with?

Answer 23

With income.

Question 24

If the YED is P but less than 1 it is known as what?

Answer 24

Necessity good.

Question 25

What is the value of a luxury good?

Answer 25

Positive YED that is greater than one.

Question 26

What is Income elasticity of Demand?

Answer 26

Measures how much a change in peoples income will change the amount of a good a consumer will demand.

Question 27

What is Cross Elasticity of Demand?

Answer 27

Measures the change in demand for a good when the price of another good changes.

Question 28

What does XED actually measure?

Answer 28

How much your spending will change, and whether the two goods are substitutes.

Question 29

What is the formula for XED?

Answer 29

Change in QD % / Change in P for another good %

Question 30

If the XED is positive, what would the two goods be?

Answer 30

Substitutes, e.g. Tea and coffee, as demand for tea falls, the other rises.

Question 31

Do normal goods have P or N YED values?

Answer 31

Positive, e.g. a car.

Question 32

If the is less than 0, it is negative, then what would the two good be?

Answer 32

They are complements, e.g. milk and coffee, demands for both rise/fall together,

Question 33

What is Price Elasticity of Supply?

Answer 33

Measure's the amount that quantity supplied will change as a response to a change in price.

Question 34

What does PES look at?

Answer 34

Looks at the behaviour of the producers instead.

Question 35

What does PES actually measure?

Answer 35

Measures how much the supply will change by.

Question 36

What does it mean if something is inelastic for PES?

Answer 36

Businesses are unlikely to change the quantity supplied by a significant amount if the price for it changes, S will be Steep.

Question 37

If something is elastic, what will that mean, PES.

Answer 37

Means the businesses are likely to change the quantity supplied by a amount due to the change in price, S is less steep.

Question 38

What is the formula for PES?

Answer 38

Change in Price % / Change in Quantity Supplied

Question 39

If PES is greater than 1 it is ___ Less than 1 it is _____

Answer 39

1) Elastic | 2) Inelastic

Question 40

What's the two factors effecting PES?

Answer 40

1) Spare Capacity = Higher price PES, means factors of productions may be unused. 2) Price change