Microeconomics 2.6 Elasticities of Demand

Question 1

Elasticity

Answer 1

Responsiveness of a chnage in one thing to a change in something else.

Question 2

Price Elasticity of Demand

Answer 2

Measures the responsiveness of demand after a change in price

Question 3

PED is calculated by

Answer 3

% change in quantity demanded/ % change in price

Question 4

PED=0

Answer 4

Perfectly inelastic- when price changes the QD does not change at all.

Question 5

PED= 0 to -1

Answer 5

Inelastic demand-when price changes the QD changes by a proportinally smaller amount.

Question 6

PED=-1

Answer 6

Unit elastic- when price changes the QD changes by the same percentage

Question 7

PED= -1 to -inifinity

Answer 7

Elastic demand- when price changes QD proportionally changes by a larger percentage.

Question 8

PED=- infinity

Answer 8

When price changes, the QD changes infinitely. There can only be one price.

Question 9

When a firm faces inelastic demand, an increase in the price will….

Answer 9

Increase revenue

Question 10

When a firm faces inelastic demand, a decrease in the price will….

Answer 10

lead to a fall in revenue

Question 11

When a firm faces elastic demand, a fall in price will lead to ….

Answer 11

an increase in revenue

Question 12

When a firm faces elastic demand, an increase in price will lead to ….

Answer 12

a fall in revenue

Question 13

If close substitues are available, PED will be….

Answer 13

more elastic

Question 14

If the good is a necessity, PED will be….

Answer 14

more inelastic

Question 15

If the good takes up a large proportion of a consumer’s income, the PED will be….

Answer 15

more elastic

Question 16

If complementary products lock consumers into a deal then PED will be

Answer 16

inelastic

Question 17

If consumers are addicted to the good, the PED will be..

Answer 17

closer to 0 (inelastic)

Question 18

In the short run, PED is more likely to be

Answer 18

Inelastic

Question 19

In the long run, PED is more likely to be

Answer 19

elastic

Question 20

YED stands for

Answer 20

income elasticity of demand

Question 21

Formula for calculating income elasticity of demand

Answer 21

% change in quantity demanded/ % change in income

Question 22

Income elasticity of demand

Answer 22

measures the responsiveness of demand after a change in income.

Question 23

Why is it essential to use + or - signs in YED?

Answer 23

Because goods can be luxury, normal or inferior and the signs help with this.

Question 24

What is another way to think about elasticity?

Answer 24

It is how sensitive a consumer is to a change in price, income or the price of another good.

Question 25

Luxury good

Answer 25

(Positive elastic good), when income changes, QD increases by a greater proportion. YED more than 1

Question 26

Normal good

Answer 26

When income changes QD increases but by a smaller proportion

Question 27

YED=0

Answer 27

When income changes, the QD does not change at all.

Question 28

Inelastic inferior good

Answer 28

When income changes the QD changes by a smaller percentage in the opposite direction.

Question 29

Elastic inferior good

Answer 29

When income changes the QD changes by a larger percentage in the opposite direction.

Question 30

YED= 5

Answer 30

Luxury good

Question 31

YED= 0.5

Answer 31

Normal good

Question 32

YED= -0.5

Answer 32

Inelastic inferior good

Question 33

YED=-5

Answer 33

Elastic inferior good

Question 34

Bus transport

Answer 34

Elastic inferior good

Question 35

Basic sliced bread

Answer 35

Inelastic inferior good

Question 36

Clothing

Answer 36

Normal good

Question 37

Jewellery

Answer 37

Luxury good

Question 38

XED

Answer 38

Cross elasticity of demand

Question 39

Formula to calculate XED

Answer 39

% change in QD product A / % change in price of Product B

Question 40

Cross elasticity of demand

Answer 40

Measures the responsivness of demand for one product to a change in the price of another product.

Question 41

XED= 1 to infinity

Answer 41

Elastic substitute- when price of Product B changes, the QD of Product A changes by a larger percentage in the same direction.

Question 42

XED= 0 to 1

Answer 42

Inelastic substitute- when the price of product B changes, smaller percentage change in QD of product A. (Weak substitute)

Question 43

XED= -1 to infinity

Answer 43

Elastic complement- when price of product B changes, the QD of product A changes by a larger percentage in the opposite direction. (Close complements).

Question 43

XED=0

Answer 43

No relationship

Question 44

XED 0 to -1

Answer 44

Inelastic complement- when the price of product B changes the QD of product A changes by a smaller percentage in the opposite direction. (Weak complements)

Question 45

# * Coke and Pepsi

Answer 45

Elastic substitutes

Question 46

# * Tea and coffee

Answer 46

Weak substitutes

Question 47

Bread and butter

Answer 47

Weak complements

Question 48

Petrol and cars

Answer 48

Strong complements