Demand Elasticities (PED and YED)

Question 1

What does elasticity measure?

Answer 1

the responsiveness of the quantity of good/service to a change in another factor

Question 2

What does law of demand state?

Answer 2

when prices increased, the quantity of the good/service demanded fell

Question 3

What does PED measure?

Answer 3

how responsive the quantity demanded of a product is to a change in its price

Question 4

What does PED stand for?

Answer 4

Price Elasticity of Demand

Question 5

What is the equation used to calculate PED?

Answer 5

Percentage Change in Quantity Demanded/ Percentage Change in Price

Question 6

What does PED of 0 show?

Answer 6

Perfect inelasticity

Question 7

What does perfect inelastic demand show?

Answer 7

Demand is completely unresponsive to price changes

Question 8

What does a PED between 0 and 1 show?

Answer 8

Price Inelastic demand

Question 9

What does price inelastic demand mean?

Answer 9

The demand responds less than proportionately to price changes

Question 10

What does a PED value of 0 show?

Answer 10

The good has unitary elastic demand

Question 11

What does unitary elastic demand show?

Answer 11

A change in price causes an exactly proportional change in demand

Question 12

What does a PED between 1 and infinity show?

Answer 12

Price elastic demand

Question 13

What does price elastic demand show?

Answer 13

Demand responds more than proportionately to a change in price

Question 14

What does a PED of infinity tell us?

Answer 14

The good has perfectly elastic demand

Question 15

Perfect Inelastic Demand
Change in Demand vs Change in Price

Answer 15

Demand DOES NOT CHANGE to a change in Price

Question 16

Price Inelastic Demand
Change in Demand vs Change in Price

Answer 16

Change in Demand IS LESS than the change in Price

Question 17

Unitary Elastic
Change in Demand vs Change in Price

Answer 17

Change in Demand IS EQUAL to the change in PRICE

Question 18

Price Elastic Demand
Change in Demand vs Change in Price

Answer 18

Change in Demand IS MORE that the change in Price

Question 19

Perfectly Elastic Demand
Change in Demand vs Change in Price

Answer 19

Demand FALLS TO ZERO if Price rises

Question 20

Perfect Inelastic Demand
Impact on Firms Revenue when PRICES RISE

Answer 20

Firms revenue increases

Question 21

Price Inelastic Demand
Impact on Firms Revenues when PRICES RISE

Answer 21

Firms revenue increases

Question 22

Unitary Elastic
Impact on firms revenue when PRICES RISE

Answer 22

Firms revenue DOES NOT CHANGE

Question 23

Price Elastic Demand
Impact on Firms Revenue when PRICES RISE

Answer 23

Firms revenue FALLS

Question 24

Perfectly Elastic Demand
Impact on Firms Revenue when PRICES RISE

Answer 24

Firms revenue FALLS TO ZERO

Question 25

Perfectly Inelastic Demand Impact on Firms Revenue when PRICES FALL

Answer 25

Firms revenue DECREASES

Question 26

Price Inelastic Demand Impact on Firms Revenue when PRICES FALL

Answer 26

Firms revenue DECREASES

Question 27

Unitary Elastic Impact on Firms Revenue when PRICES FALL

Answer 27

Firms revenue DOES NOT CHANGE

Question 28

Price Elastic Demand Impact on Firms Revenue when PRICES FALL

Answer 28

Firms Revenue INCREASES

Question 29

Perfectly Elastic Demand Impact on Firms Revenue when PRICES FALL

Answer 29

Firms revenue infinitely INCREASES

Question 30

What are four factors which determine elasticity?

Answer 30

Availability of substitutes Size of the market definition Time Percentage of income the product costs Necessities vs Luxuries

Question 31

What does YED stand for?

Answer 31

Income elasticity of demand

Question 32

What does YED show?

Answer 32

how responsive the quantity demand for a product is to a change in (real) income

Question 33

What is real income?

Answer 33

refers to incomes that have been adjusted for changes in prices

Question 34

What is the equation for YED?

Answer 34

Percentage change in quantity demanded / percentage change in income

Question 35

What is the income elasticity for normal goods?

Answer 35

Positive

Question 36

What is the income elasticity for a luxury good?

Answer 36

> +1

Question 37

What is the income elasticity of necessities?

Answer 37

>0 and <+1

Question 38

What is the income elasticity of inferior products?

Answer 38

Negative

Question 39

What does a coefficient between 0 and 1 for YED show?

Answer 39

Goods are normal goods or the goods are necessities

Question 40

What does a coefficient greater than 1 for YED show?

Answer 40

The goods are luxury goods

Question 41

What does a coefficient less than 0 for YED show?

Answer 41

Goods are inferior goods

Question 42

What is the effect of a rise in income in normal goods in terms of demand?

Answer 42

Demand will increase

Question 43

What is the effect of a rise in income in luxury goods in terms of demand?

Answer 43

Demand will increase

Question 44

What is the effect of a rise in income in inferior goods in terms of demand?

Answer 44

Demand decreases

Question 45

If following a moderate increase in income more of the good is demanded what type if good is this?

Answer 45

A normal good

Question 46

What is the income elasticities of normal necessities?

Answer 46

Low but positive income elasticity

Question 47

Give an example of a normal necessity?

Answer 47

Milk

Question 48

Are normal necessities income elastic or income inelastic?

Answer 48

Income inelastic

Question 49

What is the income elasticity of normal luxuries?

Answer 49

High and positive

Question 50

If following an increase in income less of the good is consumed, what kind of good is this?

Answer 50

Inferior