Elasticity

Question 1

What is the equation for price elasticity of demand

Answer 1

Percentage change in quantity demanded/Percentage change in price

Question 2

What is the equation for percentage change

Answer 2

Change / original x100

Question 3

What does the sign say about the elasticity

Answer 3

It is almost always a negative sign as they have an inverse relationship

Question 4

What number is perfectly inelastic

Answer 4

0

Question 5

What range of numbers are inelastic

Answer 5

0 to 1

Question 6

What is unitary elastic

Answer 6

1

Question 7

What range of numbers are elastic

Answer 7

1 to infinite

Question 8

What number id perfectly elastic

Answer 8

infinite`

Question 9

Why is PED not the same thing as gradient

Answer 9

Elasticity varies along the length of most demand curves
They are more elastic as you shift leftwards

Question 10

What does perfectly inelastic demand look like and mean

Answer 10

Straight line vertically
Quantity demanded is completely unchanged following the change in price

Question 11

What does perfectly elastic demand look like and mean

Answer 11

Horizontal straight line
Quantity demanded changes by an infinite amount in the opposite direction

Question 12

What does unitary elastic demand look like and mean

Answer 12

Rectangular hyperbola
Quantity demanded changes by the exact proportion as the price change and in the opposite direction

Question 13

What should firms do if they have a inelastic demand

Answer 13

Increase prices to maximise revenue

Question 14

What should firms do if they have elastic demand

Answer 14

Decrease prices to increase revenue

Question 15

What ways can PED be measured

Answer 15

Change actual pries and observe the affect on demand
Look at secondary data e.g. prices charged by rival firms
Market research

Question 16

What is income elasticity of demand

Answer 16

It is a measure of the sensitivity of the quantity demanded of a good or service following a change in consumer income

Question 17

What is the formula for income elasticity of demand`

Answer 17

Percentage change in quantity demanded/Percentage change in income

Question 18

What YED sign are normal goods

Answer 18

+
There is a positive relationship

Question 19

What YED sign are inferior goods

Answer 19

-

Question 20

What numbers is YED inelastic

Answer 20

0 to 1

Question 21

What numbers is YED elastic

Answer 21

1 to infinite

Question 22

What are the disadvantages to YED

Answer 22

That goods which are seen as necessities for some are luxuries for others
YED is hard to measure and is an extimate

Question 22

What do firms use YED for

Answer 22

To figure out how roughly how much they will sell and what they need to do

Question 23

What is the sign for a normal good for PED

Answer 23

negative

Question 24

What is Cross elasticity of demand

Answer 24

It is a measure of the sensitivity of consumer demand for one good following a change in the price of another good

Question 25

What is the formula for XED

Answer 25

% change in quantity demanded for good b/%change in price of good A

Question 26

What does the sign tells us about XED

Answer 26

Positive sign means the goods are substitutes Negative sign means complements

Question 27

What numbers mean XED is weak

Answer 27

0 to 1

Question 28

What numbers mean XED is strong

Answer 28

1 to infinite

Question 29

What is XED used for

Answer 29

Firms in competitive markets can steal customers Firms that sell complementary goods can increase their other goods sales

Question 30

What is price elasticity of supply (PES)

Answer 30

It is a measure of the sensitivity of the quantity supplied of a good/service following a change in its price

Question 31

What is the formula for PES

Answer 31

= Percentage change in quantity supplied / percentage change in price

Question 32

What does the sign say about PES

Answer 32

Positive = Normal good, Price increases and Quantity supplied increases Negative = Backward bending supply

Question 33

What does the number say about PES

Answer 33

0 - perfectly inelastic 0 -> 1 Inelastic 1 Unitary elastic 1 -> Infinite Elastic Infinite - Elastic

Question 34

What does a unitary elastic supply curve look like

Answer 34

Any supply curve that goes through the origin

Question 35

What determines the PES of a good

Answer 35

Time - More time means more price elastic Stock Levels - More stock means a more price elastic curve The nature of the product - Goods that can be made quick are more price elastic Availability of labour and other factors of production