mr sims- topic 3; elasticity of demand

Question 1

what is price elasticity formula

Answer 1

how much the price changes affects the demand

PED = %change in quantity demand/ % change in price

Question 2

what is price elastic and inelastic

Answer 2

price elastic products the %change in demand is grater than the %change in price e.g. ralphy shirts if the prices are high, then customers will shop some where else as demand is affected by the price. making the sales revenue going down
price inelastic products the %change in demand is less than the %change in price e.g. milk because products are a necessity. changing prices doesn’t have much affect on demand making sales revenue going up

Question 3

formula for sales revenue

Answer 3

sales revenue = price of product x quantity sold

Question 4

how does people incomes affect the demand

Answer 4

if people earn more money - there is more demand for some products and less demand for other products

Question 5

what is the formula for income elasticity

Answer 5

%change in quantity demand/ %change in real income

Question 6

how does elasticity help a business make choices

Answer 6

1) price elasticity help a manufacturer decide whether to raise or lower the price of a product - can see what might happen to the sales and overall see what will happen to the sales revenue
2) income elasticity helps a manufacturer see what will happen to sales if the economy grows or shrinks