PED

Question 1

PED

Answer 1

a measure of how much the quantity demanded of a good changes when there is a change in its own price

Question 2

PED formula

Answer 2

%△Qd/%△P

Question 3

%△Qd

Answer 3

[(Q2−Q1)/Q1]×100

Question 4

%△P

Answer 4

[(P2−P1)/P1]×100

Question 5

PED > 1

Answer 5

Price elastic demand, a change in price leads to a proportionately greater change in the quantity demanded.

Question 6

0 < PED < 1

Answer 6

Price inelastic demand, a change in price leads to a proportionately smaller change in the quantity demanded.

Question 7

PED = 1

Answer 7

Unitary elastic demand, a change in price leads to a proportionately equal change in the quantity demanded.

Question 8

PED = 0

Answer 8

Perfectly inelastic demand, a change in price leads to no change in the quantity demanded.

Question 9

PED = ∞

Answer 9

Perfectly elastic demand, any change in price would lead to an infinite change in the quantity demanded.

Question 10

draw a price inelastic curve

Answer 10

linear, downwards

Question 11

draw unitary elastic demand curve

Answer 11

curved, downwards

Question 12

draw a perfectly inelastic demand curve

Answer 12

y=0, straight line

Question 13

draw a perfectly elastic demand curve

Answer 13

x=0, straight line

Question 14

determinants of PED

Answer 14

The number and closeness of substitutes, The degree of necessity and how widely a product is defined, The time period considered, The proportion of income spent on the good

Question 15

disposable income

Answer 15

The income remaining after deduction of taxes and social security charges, available to be spent or saved as one wishes.

Question 16

total revenue

Answer 16

The money earned by a firm from selling a good or service; the selling price multiplied by the total quantity sold.

Question 17

commodities

Answer 17

A commodity is a primary good, and is an important input to production. Oil, iron ore and timber are all examples of commodities.

Question 18

firms’ total revenue and elasticity

Answer 18

When there is a change in the price of a good or service, the impact on the firm’s total revenue will depend on the price elasticity of demand of the good.

Question 19

TR1

Answer 19

P1×Q1

Question 20

TR2

Answer 20

P2×Q2

Question 21

The change in revenue

Answer 21

TR2−TR1

Question 22

explain relationship between PED and the slope of the demand curve

Answer 22

…

Question 23

tax incidence

Answer 23

The burden of tax paid by consumers or producers

Question 24

who pays more of the tax when PED is inelastic

Answer 24

consumers pay more than producers

Question 25

who pays more of the tax when PED is elastic

Answer 25

producers pay more than consumers

Question 26

taxes imposed on elastic PED

Answer 26

demand decreases significantly

Question 27

taxes imposed on inelastic PED

Answer 27

demand doesn't change significantly

Question 28

compare PED of commodities and manufactured goods end explain

Answer 28

PED of commodities is less elastic than one of manufactured goods because commodities are necessities and there are less substitutes for them

Question 29

volatile

Answer 29

liable to change rapidly and unpredictably , especially for the worse, commodities tend to be more volatile

Question 30

Income elasticity of demand (YED)

Answer 30

a measure of how much the quantity demanded of a good will change in response to a change in consumers' incomes

Question 31

YED=

Answer 31

% change in the quantity demanded of good X / % change in the income (Y) of consumer, %△Qd / %△Y

Question 32

does a sign in front of YED value matter

Answer 32

YES

Question 33

what does a positive sign mean

Answer 33

that as incomes increase, quantity demanded of a good increases; and as incomes decrease, quantity demanded decreases (normal goods), upwards linear

Question 34

what does a negative sign mean

Answer 34

that as incomes increase, quantity demanded of a good decreases; and conversely, as incomes decrease, quantity demanded increases (inferior goods), downwards linear

Question 35

superior goods

Answer 35

Goods with positive income elastic demand, those with a high price that tend to make up a larger share of a consumer’s income as income rises

Question 36

YED < –1 YED > 1

Answer 36

income elastic demand, A change in income leads to a proportionately greater change in the quantity demanded.

Question 37

–1 < YED < 1

Answer 37

income inelastic demand, A change in income leads to a proportionately smaller change in the quantity demanded.

Question 38

YED = 0

Answer 38

Perfectly income inelastic demand, a change in income leads to no change in the quantity demanded. (Goods with a positive YED value close to zero are considered necessity goods) y=0

Question 39

YED=1

Answer 39

no classification, A change in income leads to a proportionately equal change in the quantity demanded

Question 40

recession

Answer 40

A recession refers to negative economic growth occurring over two or more quarters.

Question 41

economic recession, if YED>1

Answer 41

the quantity demanded of these goods will increase proportionally more than the increase in income, superior goods

Question 42

economic recession, YED<1

Answer 42

the quantity demanded of these goods will increase proportionally less than the increase in income, necessities

Question 43

economic recession, YED<0

Answer 43

likely to experience an increase

Question 44

primary sector

Answer 44

The sector of an economy that involves extraction of natural resources; agriculture and mining are examples

Question 45

secondary sector

Answer 45

The sector of an economy where raw materials are combined or changed through manufacturing to make physical products

Question 46

tertiary sector

Answer 46

The sector of the economy where services are provided to consumers

Question 47

sectoral change

Answer 47

The change in the structure of the economy to increase or decrease production in one sector or another

Question 48

Low income countries therefore typically focus output on

Answer 48

primary products

Question 49

When an economy achieves a high level of national income

Answer 49

consumers will spend disproportionately more in the tertiary sector (even higher YED) than in the primary and secondary sectors

Question 50

During a recession, will the producer of an inferior good expect sales to increase or decrease?

Answer 50

increase