Mathematical & Diagrammatic Techniques for Elasticity

Question 1

What is the formula for calculating percentage change?

Answer 1

% Change formula: ((New - Old)/Old) × 100

This formula is used to determine the relative change in a value over time.

Question 2

What does a Price Elasticity of Demand (PED) greater than 1 indicate?

Answer 2

Elastic

This means that the quantity demanded changes by a greater percentage than the price change.

Question 3

What does a Price Elasticity of Demand (PED) less than 1 indicate?

Answer 3

Inelastic

This means that the quantity demanded changes by a smaller percentage than the price change.

Question 4

What does a Price Elasticity of Demand (PED) equal to 1 indicate?

Answer 4

Unit Elastic

This means that the quantity demanded changes by the same percentage as the price change.

Question 5

What does a Price Elasticity of Demand (PED) equal to 0 indicate?

Answer 5

Perfectly Inelastic

This indicates that quantity demanded does not change regardless of price changes.

Question 6

What does a Price Elasticity of Demand (PED) equal to infinity indicate?

Answer 6

Perfectly Elastic

This indicates that any price change will lead to an infinite change in quantity demanded.

Question 7

What is the significance of drawing demand curves with different slopes?

Answer 7

To visually demonstrate degrees of elasticity

This helps in understanding how responsive quantity demanded is to price changes.

Question 8

What is the purpose of showing total revenue boxes under each price point in diagrams?

Answer 8

To link PED with revenue

This visually represents how changes in price affect total revenue based on elasticity.

Question 9

What does a YED greater than 0 indicate?

Answer 9

Normal goods

This means that demand for the good increases as income rises.

Question 10

What does a YED less than 0 indicate?

Answer 10

Inferior goods

This means that demand for the good decreases as income rises.

Question 11

What does XED less than 0 represent?

Answer 11

Complementary goods

This means that the demand for one good increases as the price of the other decreases.

Question 12

What does XED greater than 0 represent?

Answer 12

Substitute goods

This means that the demand for one good increases as the price of the other increases.

Question 13

What is a pro tip for drawing economic diagrams?

Answer 13

Label your axes clearly, show shifts AND movements, and always link diagram to real-world implications

This enhances understanding and clarity in economic analysis.