PED 1
Define PED
Responsiveness of changes in quantity demanded to a change in prices.
PED Formula
%change in quantity demanded/ % change in prices
YED Formula
%change in Quantity demanded/ % change in Incomes
Define normal goods.
Income increases, demand increases; Income decreases, demand decreases
What is the reason why PES is always a positive value?
The law of supply
Which of the following is not a determinant of PED?
A. Availability of substitutes
B. Degree of necessity
C. Price as a proportion of income
D. The availability of spare stocks
D. The availability of spare stocks
T/F: Demand curve is always downward sloping because of the law of demand. and explain reasons.
Which of the following products is likely to have the lowest PED value?
A. iPhones
B. Lenovo Laptops
C. Office space in prime location
D. Rice
D. Rice
Which of the following YED values represents the YED for luxury goods?
A. -0.7
B. -1.6
C. +1.5
D. +0.4
C. +1.5
Which of the following products is most likely to have a high price elasticity of supply?
A. Breakfast cereal
B. Commercial Aircrafts
C. Fresh Fruits
D. Hollywood movies
A. Breakfast cereal
A firm wants to maximize its revenue. The firm wants to decrease its price to reach this goal. The products that firms provide need to be?
PED for the product is elastic.
Calculate PED:
Price increases from $10 to $15; Quantity demanded drops from 300 units to 270 units. What is the PED?
0.2
PED for sandwiches is 1.25, and price has increased by 5%, what is the new quantity demanded when knowing the old quantity demanded is 20,000 units?
18750 units/ sandwiches
YED for product A=+2.74; YED for product =-0.8.
What types of good A and B are?
A: (normal) luxury good
B: inferior good
Draw diagrams for 5 different PES with different values. (On board)
On board.
A. Knowing the value of PED allows firms to determine what customers want
B. Knowing the value of PED allows firms to maximize total revenue
C. Knowing which goods are price elastic can inform firms to cut prices in order to increase revenue
D. Knowing which goods are price inelastic can help the government to raise government tax revenues
A. Knowing the value of PED allows firms to determine what customers want
During a football game, it starts to rain and the temperature drops. The senior class, which runs the concession stand and is studying economics, raises the price of coffee from 50 cents to 75 cents a cup. They sell more quantity than ever before. Which answer explains this?
A. The supply of coffee increased.
B. The demand curve for coffee was elastic.
C. The supply for coffee decreased.
D. The demand for coffee increased.
E. The demand curve for coffee was inelastic.
D. The demand for coffee increased.
YED for familyty vacations is +3.15, what is the likely change in quantity demanded if real incomes rise by 4.5% this year? (two decimals)
14.18%
Which of the following is not a reason why businesses and governments would find YED useful?
A. It allows firms to analyze how a change in the price of a substitute will affect the quantity demanded of their products
B. It allows firms to alter production levels according to the business cycle.
C. it allows governments to forecast the impact on total demand during a recession or boom
D. It can help a government to determine the effects of a change in income tax rates.
A. It allows firms to analyze how a change in the price of a substitute will affect the quantity demanded of their products
What is the PES when price increases from $25 to $30, and quantity supplied increases from 40,000 units to 45,000 units. (2 decimals)
0.63
Which of the following statements is incorrect?
A. PED is lower in the short run than in the long run
B. The fewer the number of substitutes, the more price elastic the demand
C. The more addicitive the product, the more price inelastic the demand
D. The more luxurious the product, the more price elastic the demand
B. The fewer the number of substitutes, the more price elastic the demand
The price of the new Ferrari car rises by 20%. What is the resulting change in quantity demanded likely to be, and which determinant of PED is the most important consideration here?
A. Less than 20% reduction in quantity demanded due to customers deeming it to be a necessity
B. Less than 20% reduction in quantity demanded due to the time needed to respond
C. More than 20% reduction in quantity demanded due to the limited number of close substitutes
D. More than 20% reduction in quantity demanded due to the proportion of income
D. More than 20% reduction in quantity demanded due to the proportion of income
If an indirect tax is imposed on a supplier, the tax incidence will fall more heavily on consumers if?
PED is more inelastic than supply. (PED inelastic, PES elastic)
Draw one PARTICULAR curve for YED and explain why it looks like this way.
On board.
Explain why unitary PES needs to pass the origin.