Micro 1.2.3

Question 1

How to work out PED?

Answer 1

%change in demand / %change in price

Question 2

What if PED is less than -1?

Answer 2

Price elastic

If cut in price, increase in revenue

If rise in price, decrease in revenue

Question 3

If PED between 0 and 1?

Answer 3

Price inelastic

If price cut, revenue fall

If price rise, revenue increase

Question 4

If PED is =1?

Answer 4

Unit elastic

Same revenue if price cut or price rise

Question 5

What if PED= 0

Answer 5

Perfectly inelastic

If price cut, revenue fall

If price rise, revenue increase

Question 6

If PED = infinity?

Answer 6

Perfectly elastic

Price cut, revenue increase

Price rise, revenue decrease

Question 7

What determines PED?

Answer 7

Availability of substitutes

Time (most inelastic at first but soon become elastic)

Actual price (expensive or cheap)

Question 8

YED formula?

Answer 8

%change in demand / %change in income

Question 9

YED 0-1 or 1+ shows?

Answer 9

0-1 shows income inelastic. Demand changes less than proportionately

1+ shows income elastic. More than proportionate change in demand

Both for luxury goods and normal goods

Question 10

If YED <0?

Answer 10

Inferior good

Demand falls as income rises

Question 11

XED formula?

Answer 11

%change in demand of A
/
% change in price of B

Question 12

If XED is positive?

Answer 12

Products are in competing demand. Substitutes.

If 0-1 then weak substitute

If 1+ then strong substitute

Question 13

If XED negative?

Answer 13

Goods are in joint demand

They are compliments

0–1 it is weak compliment

If

Question 14

What is PES formula and what is it?

Answer 14

%change in supply /
%change in price

If elastic, produces can change their output without a rise in cost or time delay

If inelastic, hard to change production

Question 15

Determinants of PES?

Answer 15

Time

Agricultural products take time to grow

Having to find new materials

Stock of finished products and components

Ease of switching between alternatives