Types of goods
Goods having 0 PED
Price inelastic goods
If demand is highly responsive to price changes, demand is said to be this.
elastic demand
If XED is positive, the two goods are likely to be these.
substitutes
Luxury goods usually have this type of price elasticity.
elastic >1
If petrol prices rise sharply and consumers continue buying almost the same amount, petrol demand is likely to be price elastic.
False
Goods having negative income elasticity
Inferior goods
Goods with positive YED are called these goods.
Normal goods
Cars and petrol are examples of this relationship in XED.
complementary goods
During a recession, demand for instant noodles may rise because they are often considered this type of good.
inferior
During an economic recession, demand for budget grocery brands may increase because these goods can behave as inferior goods.
True
Positive but inelastic income elasticity
Necessities
The government increases taxes on cigarettes, but tax revenue rises.
What does this suggest about the PED for cigarettes?
Inelastic
Why might airline tickets have elastic demand? Give one reason.
there are many substitutes / consumers can delay travel / it is expensive relative to income?
When total revenue rises after a price increase, demand is likely to be this.
Elastic
If Netflix increases its subscription price and many consumers switch to Disney+, the cross elasticity between the two services is likely to be negative.
False
Price and cross elasticity of bread
Low, positive high
Why might the PED for petrol be more elastic in the long run than in the short run
consumers have more time to switch to alternatives such as EVs or public transport
Streaming services reduce subscription prices, but total revenue falls.
Using elasticity theory, explain why this may have happened.
demand was inelastic, so the percentage increase in quantity demanded was smaller than the percentage fall in price
A firm sells a necessity product but wants to increase profits.
Should it focus on price increases or advertising to create brand loyalty? Justify using elasticity concepts.
price increases may work better because necessities usually have inelastic demand, though advertising can further reduce elasticity and strengthen market power
A luxury hotel chain is likely to experience a larger fall in demand during a recession than a budget hotel chain.
True
Income elasticity of electric cars in developing economy
positive high
A business finds that its product has a YED of –0.6.
Predict what may happen to demand if consumer incomes rise significantly.
demand will fall because the product is an inferior good
A strongly negative XED value suggests the goods are this.
strong complements
Two smartphone brands compete closely in the market.
Explain why their cross elasticity is likely to be high and positive.
consumers can easily switch between brands, making them close substitutes
A streaming platform with exclusive content is likely to face more elastic demand than one with many competitors offering identical content.
False