Economics 10 Q5 - PED

What does a PED value greater than 1 indicate?

• Demand is perfectly elastic

• Demand is price elastic

• Demand is price inelastic

• Demand is unitary elastic

Answer explanation

A PED value greater than 1 means that a percentage change in price leads to a larger percentage change in quantity demanded, indicating price elasticity.

If the demand curve is vertical, the PED is:

• Zero

• Infinity

• One

• Greater than one

Answer explanation

A vertical demand curve represents perfectly inelastic demand, where quantity demanded does not change regardless of price.

Which of the following is likely to have an inelastic demand?

• Luxury cars

• Diamonds

• Insulin for diabetics

• Designer clothes

Answer explanation

Insulin is a necessity with few substitutes, so demand is relatively unresponsive to price changes, making it inelastic.

PED is calculated as:

• Percentage change in price ÷ percentage change in quantity demanded

• Percentage change in quantity demanded ÷ percentage change in price

• Price ÷ quantity demanded

• Quantity demanded ÷ price

Answer explanation

PED measures the responsiveness of quantity demanded to a change in price using this formula.

Which of the following factors is most likely to make demand more elastic?

• The good is a necessity

• Few substitutes are available

• A large proportion of income is spent on the good

• The good is addictive

Answer explanation

When a good takes up a large portion of income, consumers are more sensitive to price changes, making demand more elastic.

If the price of a product increases by 10% and quantity demanded decreases by 20%, the PED is:

• 0.5

• 1

• 2

• 0.2

Answer explanation

PED = (% change in quantity demanded) ÷ (% change in price) = -20% ÷ 10% = 2.

A product’s PED is 0.8. If the price increases by 15%, the expected decrease in quantity demanded is:

• 12%

• 8%

• 10%

• 1.2%

Answer explanation

PED = % change in quantity demanded ÷ % change in price → % change in quantity demanded = PED × % change in price = 0.8 × 15% = 12%.

The PED of a good is 1.5. If the quantity demanded decreases by 30%, the price must have increased by:

• 20%

• 45%

• 10%

• 25%

Answer explanation

PED = % change in quantity demanded ÷ % change in price → % change in price = % change in quantity demanded ÷ PED = 30% ÷ 1.5 = 20%.

If a 5% decrease in price leads to a 10% increase in quantity demanded, the PED is:

• 0.5

• 1

• 2

• 1.5

Answer explanation

PED = (% change in quantity demanded) ÷ (% change in price) = 10% ÷ -5% = 2.

A product’s PED is 0.6. If the price decreases by 10%, the change in quantity demanded is:

• 6% increase

• 10% increase

• 0.6% increase

• 16% increase

Answer explanation

% change in quantity demanded = PED × % change in price = 0.6 × -10% = 6%.