Theme 1.2.3 Price elasticity of demand (unit 9)

Question 1

What is price elasticity?

Answer 1

It is the proportionate response to changes in quantity demanded proportionate to the change in price.

%change in price

Question 2

What is the alternative formula for price elasticity?

Answer 2

New value - original value
————————————– = percentage change
original

Then:

Percentage change
——————————— X 100 = price elasticity
original value

Question 3

What is the numerical value of something be elastic?

Answer 3

Greater than 1

Where the % effect of increasing the price results in a higher % fall in demand.

Question 4

What is the numerical value of something be inelastic?

Answer 4

Less than 1

Where the % effect of increasing the price results in a smaller % fall in demand.

Question 5

What is unitary elasticity and perfectly elastic/ inelastic?

Answer 5

Where the value of price elastic is 1 so they are directly proportional.

perfectly elastic has a value of infinity.
perfectly inelastic has a value of 0.

Question 6

What determines elasticity?

Answer 6

• Availability of substitutes.
• Width of market definition
• Time (longer time=more elastic)
• Need vs Wants

Question 7

What is the equation for total revenue?

Answer 7

Quantity sold X average price.

Question 8

What is the equation for price expenditure?

Answer 8

Quantity purchased X average price.