YED and PES Quiz

Income elasticity of demand, or YED, is given by

• the percentage change in income divided by the percentage change in price

• the percentage change in price divided by the percentage change in income

• the percentage change in income divided by the percentage change in quantity demanded

• the percentage change in quantity demanded divided by the percentage change in income

Suppose income increases from $15,000 to $18,000, consumption of hotdogs falls by 10% and consumption of steaks increases by 15%. Identify the true statement below.

• Hotdogs have a YED of 5 and are an inferior good.

• Hotdogs have a YED of -5 and are a normal good.

• Steaks have a YED of 0.75 and are a normal good and a luxury.

• Steaks have a YED of 0.75 and are a normal good and a necessity.

The price elasticity of supply measures the responsiveness of _______________ to changes in ______________________.

• quantity demanded / price

• quantity supplied / income

• quantity supplied / quantity demanded

• quantity supplied / price

If a firm needs a long time to respond to changes in the price of the good it sells, the PES value will likely be

• less than one but greater than zero

• equal to one

• greater than one

• zero

If a firm finds it very easy and costless to shift their resources into and out of the production of a good, the PES value will likely be

• zero

• less than one but greater than zero

• equal to one

• greater than one

If firms have limited ability to store stocks of the good they produce, the PED value will likely be

• zero

• less than one but greater than zero

• equal to one

• greater than one

If firms have a relatively large amount of excess capacity, the PES for the good they produce will likely be

• zero

• less than one but greater than zero

• equal to one

• greater than one

An Engel curve can be used to illustrate the concept of

• income elasticity of demand

• price elasticity of supply

• the law of demand

• price elasticity of demand

Primary commodities tend to have lower PES than manufactured goods because

• producers of primary commodities rarely have excess capacity

• primary commodities often take more time to produce than manufactured goods

• primary commodities have lower prices so firms do not care to increase production

• producers of primary commodities usually have low mobility of their factors of production

At high prices and low quantities

• a percentage change in price will likely be relatively larger than a percentage change in quantity

• a percentage change in price will likely be relatively smaller than a percentage change in quantity

• the amount of change in price will likely be more than the change in quantity

• the amount of change in price will likely be less than the change in quantity