Unit 1 - Elasticity
Price elasticity of demand
1. What is meant by price elasticity of demand?
2. Write the equation.
3. On a graph draw an elastic demand curve and an inelastic demand curve.
4. Give some examples of products that have elastic demand and inelastic demand.
Elastic demand:
Inelastic demand:
5. Provide some data that gives these results:
a) Price elasticity of demand of -0.5
b) PED of -2
6. Why might a business find it useful to know the price elasticity of demand for its
products?
7. List four factors that determine the elasticity of demand for a product
Price elasticity of supply
1. What is meant by price elasticity of supply?
2. Write the equation.
3. On a graph draw an elastic supply curve and an inelastic supply curve.
4. Give some examples of products that have elastic supply and inelastic supply.
Elastic supply:
Inelastic supply:
5. Provide some data that gives these results:
a) Price elasticity of supply of 0.5
b) PES of 2
6. List four factors that determine the elasticity of supply for a product
Income Elasticity of Demand
1. What does income elasticity of demand measure?
2. Write the equation.
3. If incomes rise from £25000 to £30000 and the demand for the product rises from
10000 to 12000, what is the income elasticity of demand? Is it elastic or inelastic?
What does this tell us about the product?
4. What is the income elasticity of demand likely to be for these goods? Give examples
of them;
a) Normal goods
b) Luxury goods
c) Necessity goods
d) Inferior goods
5. What can YED tell us about demand for different types of goods in a recession?
6. How might a business use the information on income elasticity of demand for its
products?
Cross Price Elasticity of Demand
1. What does cross price elasticity of demand measure?
2. Write the equation.
3. If the price of Coca Cola increases from 50p to 60p and the demand for Pepsi
increase from 10000 bottles to 12000 bottles what is the cross elasticity of demand?
Is it elastic or inelastic? What does this tell us about these goods and how closely
related these goods are?
4. If the price of Coca Cola increases from 50p to 60p and the demand for crisps falls
from 10000 packets to 9500 packets what is the cross elasticity of demand? Is it
elastic or inelastic? What does this tell us about these goods and how closely related
these goods are?
5. Give an example of goods with a cross elasticity of demand of 0
6. Why might a business find it useful to know the cross price elasticity of demand for
its products?