Elasticity

Question 1

If price is a fixed market price what will be the state of the demand curve

Answer 1

Horizontal line

Question 2

Define elasiticity

Answer 2

Responsiveness of one variable to a change in another

Question 3

What does it mean if a firm is elastic or inelastic

Answer 3

If a firm is price elastic - There is more change in the quantity of demand given changes in the price
If a firm is price inelastic - There is less change in the quantity of demand given changes in the price

Question 4

Define elastic demand

Answer 4

Quantity demanded changes by a larger % than the price |Ped|>1

Question 5

Define inelastic demand

Answer 5

Quantity demanded changes by a smaller % than the price |Ped|<1

Question 6

Define unit elasticity

Answer 6

of demand |Ped|= 1

Question 7

What are the determinants of elasticity

Answer 7

Number pr and closeness of substitute goods
Proportion of income spent on good
Time between price change and deadline for purchase

Question 8

How does elastic demand curve vs inelastic demand curve look different

Answer 8

Elastic demand - not steep

Ineastic demand -steep graph

Question 9

Explain how totally inelastic demand curve would look graphed and give an example

Answer 9

Totally Inelastic demand ex: Medical life-saving equipment or specialised drugs with one supplier
Line is completely vertical

Question 10

Explain how infinitely elastic demand curve would look graphed and give an example

Answer 10

Infinitely elastic demand
A perfectly competitive market where there are lots of suppliers so if one person alters the price the overall price is not change
Demand curve is horizontal

Question 11

Explain how unit elastic demand curve would look graphed and give an example

Answer 11

Unit elastic demand
Revenue all along the graph is equal
Revenue = Demand x Price
Very even exponential decay - quarter circle look on graph

Question 12

What are the determinants of income elasticity

Answer 12

The necessity of the good

Level of income of consumers

Question 13

What are the applications of income elasticity to a firm

Answer 13

Importance of perceptions of a product

Repositioning a product

Question 14

What are the determinants of Cross price elaticity

Answer 14

The closeness of complements or substitutes

Time period

Question 15

What are the applications to a firm of cross price elasticity

Answer 15

Effects of change in competitors pricing strategy

Strategies to make a product less cross-price elastic

Question 16

Define cross price elasticity

Answer 16

n economics, the cross elasticity of demand or cross-price elasticity of demand measures the percentage change of the quantity demanded for a good to the percentage change in the price of another good

Question 17

Define income elasticity

Answer 17

Income elasticity of demand is an economic measure of how responsive the quantity demand for a good or service is to a change in income

Question 18

Calculating elasticity using arc method

Answer 18

Formula is goven :

P = (Change in variable Q/Midpoint Q) /(Change in variable P/Midpoint P)

Question 19

What is arc elasticity vs point elasticity

Answer 19

Point elasticity is elasticity at a particular point on a curve
Arc elasticity is elasticity between two points on a curve

Question 20

Formula for point elasticity

Answer 20

P = dQ/dP x P/Q