elastcities

Question 1

inelastic demand

Answer 1

even if price increases or decreases demand remains the same /stable this includes necessity items and where there is limited substitutes

demand is not very responsive to changes in prices

Question 2

elastic demand

Answer 2

-this is where quantity demanded of product all service is highly responsive to changes in prices if the price of the product increases the demand decreases and if the price decreases demand increases this is when there is many substitutes and the products are non essential

Question 3

PED

Answer 3

price elasticity of demand measures the responsiveness of quantity demanded given a change in demand

Question 4

formula PED

Answer 4

% change quantity demanded/ %change price

Question 5

price elastic

Answer 5

> 1 greater than one-demand is price elastic, quantity demanded changes more than price

Question 6

price inelastic

Answer 6

<1 smaller than one-demand price inelastic, the quantity demanded change is less than price.

Question 7

demand perfectly price inelastic

Answer 7

0 demand perfectly price inelastic-regardless of the price changing quantity demanded won’t change

Question 8

perfectly price elastic

Answer 8

(infinate) demand perfectly price elastic-in extreme examples if perfectly elastic any change in price would have no impact on the quantity demanded.

Question 9

unitary elastic

Answer 9

1 demand is unitary elastic the value of PED is exactly 1 ignoring the minus for example a decrease in the price of a phone by 10% increases the demand by 10%

Question 10

examples of:

Elastic demand

Inelastic demand

Unitary elasticity

Perfectly price inelastic

Perfectly price elastic

Answer 10

Luxury items

Food, medicine, utilities

Price increases by 10% and quantity demanded increases by 10%

Life saving medicines, addictive substances

Not essential but when price rises people still willing to pay

Clothes ,electronics price increases find alternatives

Question 11

YED

Answer 11

measures the responsivness of quantity demanded given a change in income

Question 12

formula

Answer 12

% change in quantity demanded/ % change in income

Question 13

normal goods relation to income and demand

Answer 13

positive +, if income increases demand increases

Question 14

inferior goods relation between income and demand

Answer 14

• inverese relation,income increases demand decreases

Question 15

normal luxury

Answer 15

bigger than 1 demand is income elastic, increase income increases demand but by alot more, didnt previously purchase

Question 16

normal necessity

Answer 16

less than 1, demand is income inelastic, increase in income increases demand but not by as much as income increases by- might by slightly more - used to buy before

Question 17

less than one - inferior goods

Answer 17

demand is income inelastic

Question 18

greater than one - inferior goods

Answer 18

demand is income elastic

Question 19

demand is 0

Answer 19

demand is perfectly priced ineastic

Question 20

XED

Answer 20

Cross elasticity of demand is the responsiveness of a change in demand of one good, X, to a change in price of another good, Y.

Question 21

formula XED

Answer 21

% change in quantity demanded of X/ % change price of Y

Question 22

complementry goods

Answer 22

Complementary goods have a negative XED. If one good becomes more expensive, the quantity demanded for both goods will fall.

Question 23

strongly related complemntary goods

Answer 23

strongly related complements: a small fall in the price of good X leads to a large increase in QD of Y, demand between goods is price elastic price one good changes, quantity demanded for others will change proportionally more. >1

Question 24

weakly related compliments

Answer 24

Weakly related complements: a large fall in the price of good X leads to only a small increase in QD of Y. <1
Demand between goods are price inealstic price one good changes quantity demanded for other change proportionally less.

Question 25

substituites

Answer 25

Substitutes can replace another good, so the XED is positive and the demand curve is upward sloping. If the price of one brand of TV increases, consumers might switch to another brand.

Question 26

strongly related substitutes

Answer 26

strongly related substitutes: a small increase in the price of good X leads to a large increase in QD of Y. >1 price elastic.

Question 27

weakly related substitutes

Answer 27

a large increase in the price of good X leads to a smaller increase in QD of Y.<1 ineastic price

Question 28

Unrelated goods

Answer 28

Unrelated goods have a XED equal to zero. For example, the price of a bus journey has no effect on the demand for tables.

Question 29

why are firms interested in the XED

Answer 29

Firms are interested in XED because it allows them to see how many competitors they have. Therefore, they are less likely to be affected by price changes by other firms, if they are selling complementary goods or substitutes.

Question 30

0- perfectly price inelastic (xed)

Answer 30

0- perfectly price inelastic demand between goods has no relationship

Question 31

price elasticity of supply definition

Answer 31

measures the responsivness of quantity supplied to a change in price, reflects the ability of producers to change their output following a change in demand

Question 32

what happens when supply id price elastic

Answer 32

producers can respond quickly and easily to changing demand without the need for a rise in market price

Question 33

formula PES

Answer 33

% change in quantitity supplied / % change in price

Question 34

elastic supply ........

Answer 34

firms can increase supply quickly at little cost, PES more than 1

Question 35

explain elastic supply

Answer 35

a large change in demand from d1 to d2 where we are able to increase quantity from q1 to q2 with only a small change in price.

Question 36

situations where supply may be elastic

Answer 36

- supplier has pleanty of spare capacity to increase output -high stock levels -immediately avaliable to meet rising demand -short production time phrame( mass production ) -ease of factor subsitution is high, labour and capital are more mobile, transfereeable skills

Question 37

inelastic supply

Answer 37

an increase in supply will be expensive for firms and take a long time. PES is less than 1

Question 38

explain inelastic supply

Answer 38

limited increase in ouput from q1 to q2 when there is a big increase in demand from d1 to d2 and there is a signifiicant increase in market price rather than quantity supplied

Question 39

perfectly inelastic supply

Answer 39

pes=0, supply is fixed, no change in demand, it cannot be met easily

Question 40

perfectly elastic

Answer 40

pes= infinity, any quantity demanded can be met without changing price