Elasticity of Demand

What are the determinants of price elasticity of demand?

• availability of substitutes, necessity or luxury, proportion of income spent, time period, and definition of the market

• weather conditions, political stability, exchange rates, and consumer expectations

• cost of production, level of competition, consumer demographics, and technological advancements

• price of the product, consumer income, consumer tastes and preferences, advertising and promotion, and government regulations

Explain the concept of cross elasticity of demand.

• Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the income of consumers.

• Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the quantity supplied of another good.

• Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good.

• Cross elasticity of demand measures the responsiveness of the quantity supplied of one good to a change in the price of another good.

What does a positive cross elasticity of demand indicate?

• Independent

• Complements

• Substitutes

• No relationship

What does a negative cross elasticity of demand indicate?

• Substitutes

• No relationship

• Perfect competition

• Complements

Define income elasticity of demand.

• Income elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to a change in income.

• Income elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to a change in population.

• Income elasticity of demand is a measure of the responsiveness of the quantity supplied of a good or service to a change in income.

• Income elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to a change in price.

What does a positive income elasticity of demand indicate?

• There is no relationship between income and quantity demanded.

• As income increases, quantity demanded increases.

• As income decreases, quantity demanded increases.

• As income increases, quantity demanded decreases.

What does a negative income elasticity of demand indicate?

• As income increases, quantity demanded increases.

• As income decreases, quantity demanded decreases.

• Income has no effect on quantity demanded.

• As income increases, quantity demanded decreases.

What is the formula to calculate price elasticity of demand?

• Percentage change in quantity demanded + Percentage change in price

• Percentage change in quantity demanded * Percentage change in price

• Percentage change in price / Percentage change in quantity demanded

• Percentage change in quantity demanded / Percentage change in price

What is the formula to calculate cross elasticity of demand?

• Percentage change in quantity demanded of one good / Percentage change in income

• Percentage change in quantity demanded of one good / Percentage change in price of another good

• Percentage change in price of one good / Percentage change in income

• Percentage change in price of one good / Percentage change in quantity demanded of another good

What is the formula to calculate income elasticity of demand?

• Percentage change in quantity demanded * Percentage change in income

• Percentage change in income / Percentage change in quantity demanded

• Percentage change in quantity demanded / Percentage change in income

• Percentage change in quantity demanded + Percentage change in income