Elasticity

Question 1

What are the 4 elasticities?

Answer 1

-price elasticity of demand
-price elasticity of supply
-income elasticity of demand
-cross elasticity

Question 2

What is price elasticity of demand?

Answer 2

-the responsiveness of demand to changes in price

Question 3

How do you calculate price elasticity of demand ?

Answer 3

% change in quantity demanded / % change in price

Question 4

When is it inelastic?

Answer 4

If the answer is between 0 and -1

Question 5

When it is elastic?

Answer 5

If the answer is between -1 and Infinity

Question 6

What type of answer is price elasticity?

Answer 6

Always a negative answer

Question 7

What would happen if demand price is elastic?

Answer 7

-increasing price would reduce TR (total revenue)
-reducing price would increase TR

Question 8

What would happen if demand price is inelastic?

Answer 8

-increasing price would increase TR
-reducing price would reduce TR

Question 9

How is something unitary elastic?

Answer 9

-if it =1
-when % change in quantity demanded is the same as % change in price)

Question 10

How is something perfectly inelastic?

Answer 10

-if it =0
-when % change in quantity demanded stays the same no matter the change in price)

Question 11

How is something perfectly elastic?

Answer 11

-if it = infinite
-when % change quantity demanded drops completely if there is any change in price

Question 12

What are the likely determinants of elasticity of demand?

Answer 12

-time period
-number and closeness of substitutes
-the proportion of income taken up by the product
-luxury or necessity
-habit forming

Question 13

What is price elasticity of supply?

Answer 13

The responsiveness of supply to a change in price

Question 14

Will price elasticity of supply be positive or negative?

Answer 14

Always positive

Question 15

Is an elastic supply a steep line on a graph or a shallow line?

Answer 15

Elastic supply = shallow line

Question 16

Is an inelastic supply a steep line on a graph or a shallow line?

Answer 16

Inelastic supply = steep line

Question 17

If the value is less than one what is it?

Answer 17

Inelastic

Question 18

If the value is greater than one what is it?

Answer 18

Elastic

Question 19

If the value equals one what is it?

Answer 19

Unit elastic

Question 20

How do you calculate price elasticity of supply?

Answer 20

% change in quantity supplied / % change in price

Question 21

What are some likely determinants of elasticity of supply?

Answer 21

-availability of the four FOP’s
-time
-spare capacity
-spare stock and components

Question 22

What is income elasticity of demand?

Answer 22

Responsiveness of demand to a change in income

Question 23

How do you calculate income elasticity of demand?

Answer 23

% change in quantity demanded / % change in income

Question 24

If the answer of YED is positive, what sort of good is it?

Answer 24

A “normal” good

Question 25

If the answer of YED is negative, what sort of good is it?

Answer 25

An “inferior” good

Question 26

What is a normal good?

Answer 26

(Positive value) Demand rises and income rises and vice versa

Question 27

What is an inferior good?

Answer 27

(Negative value) Demand falls as income rises and vice versa

Question 28

What is a luxury good? (YED)

Answer 28

An answer with a value of +1

Question 29

What is cross elasticity?

Answer 29

The responsiveness of demand of one good to changes in price of a related good

Question 30

What does cross elasticity show?

Answer 30

-some goods are complements of each other -some goods are substitutes of each other

Question 31

What is a negative value in XED?

Answer 31

A complementary good

Question 32

What is a positive value in XED?

Answer 32

A substitute good

Question 33

How do you calculate cross elasticity of demand?

Answer 33

% change in quantity demanded of good A / % change in price of good B

Question 34

What does a higher value mean in XED?

Answer 34

The closer they are