Elasticities

What does cross elasticity measure?

• Measures responsiveness of changes in quantity demanded to changes in price.

• Measures the responsiveness of the quantity demanded of

  a good or service to a change in income.

• Measures the responsiveness of the quantity demanded of one good to changes in price of another good.

What is the relationship between two good if Ex = -2

• Substitutes

• No relationship

• Complements

What is the relationship between two goods if Ex = 5

• Substitutes

• No relationship

• Complements

Calculate the co-efficient if the price of good A increased by 10% and the demand for good B fell by 5%

• 2

• -2

• 0.5

• -0.5

What type of good would have an Ey = 2

• Luxury

• Necessity

• Inferior

What type of good would have an Ey = -4

• Luxury

• Necessity

• Inferior

What type of good would have an Ey = 0.5

• Luxury

• Necessity

• Inferior

What does income elasticity measure?

• Measures responsiveness of changes in quantity demanded to changes in price.

• Measures the responsiveness of the quantity demanded of

  a good or service to a change in income.

• Measures the responsiveness of the quantity demanded of one good to changes in price of another good.

What are inferior goods?

• Lower quality goods that we consume when we are on lower incomes

• Higher quality versions of goods that we consume more of as our incomes rise

• Our basic needs. Things we need to survive e.g. housing clothing, food, power, transport

• Goods that can be used in place of each other

• Goods that we consume/use together

What are substitutes?

• Lower quality goods that we consume when we are on lower incomes

• Higher quality versions of goods that we consume more of as our incomes rise

• Our basic needs. Things we need to survive e.g. housing clothing, food, power, transport

• Goods that can be used in place of each other

• Goods that we consume/use together