Elasticity

Question 1

define PED

Answer 1

measures the responsiveness of quantity demanded to a change in price

Question 2

what are the different values for PED and what do they mean

ignore minus sign but not when calculating

Answer 2

• Elastic = PED > 1
• Inelastic = PED < 1
• Perfectly inelastic demand = 0
• unitary elastic demand = 1
• Perfectly elastic demand = infinite

Question 3

define PES

Answer 3

measures how responsive the quantity supplied is to a change in price

ignore minus sign but not when calculating

Question 4

what are the different values for PES and what do they mean

Answer 4

• Elastic supply = PES > 1
• Inelastic supply = PES < 1
• Perfectly inelastic supply = 0
• Unitary elastic supply = 1
• Perfectly inelastic supply = infinite

Question 5

define YED

Answer 5

measure responsiveness of quantity demanded to a change in income

use minus sign

Question 6

what are the different values for YED and what do they mean

Answer 6

• negative income elastic = YED < 0, inferior good
• positive income elastic = YED > 0, normal good
• high elastic = YED > 1, luxury good
• Inelastic = YED < 1, necessity good
• Perfectly income elastic = 0, demand doesnt change

luxurys and neccessity goods are within normal goods

Question 7

define XED

Answer 7

measures hwo responsive the demand for one good is when the price of another good changes

use minus sign

Question 8

what are the different values for XED and what do they mean

Answer 8

• Negative XED = XED < 0, complimentary
• Positive XED = XED > 0, substitutes
• Zero XED = 0, unrelated goods

Question 9

define WED

Answer 9

measures how responsive the demand for labour is to a change in wage rate

ignore minus sign but use when calculating

Question 10

what are the different values for WED and what do they mean

Answer 10

• Elastic = WED > 1
• Inelastic = 0 < WED < 1
• Perfectly inelastic = 0
• Perfectly elastic = 1

Question 11

define WES

Answer 11

measures how responsive the supply of labour is to a change in wage rate

ignore minus but use when calculating

Question 12

what are the different values for WES and what do they mean

Answer 12

• Elastic = WES > 1
• Inelastic = 0 < WES < 1
• Perfectly inelastic = 0
• Perfectly elastic = infinite