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WorksheetsBusiness relevance of demand elasticities
Total questions: 10
Worksheet time: 6mins
Why should we understand PED(Price elasticity of demand)?
To understand price variations in a market, impact of changing prices on consumer expenditures, sale revenue and government indirect tax receipts
To understand price variations in demand, impact of changing prices on buyers expenditures, sale revenue and government direct tax receipts
To realise price variations in a market, impact of changing prices on buyers expenditures, sale revenue and government indirect tax receipts
To realise price variations in demand, impact of changing prices on consumer expenditures, sale revenue and government direct tax receipts
Variations in price of elasticity of demand can be used to explain:
Difference between peak and off peak rail travel in some countries
The intake of price that consumers and buyers use
Why it’s cheaper to purchase airline tickets a few months before traveling
Why restaurant meals are more expensive during religious festivals
What is the formula for total expenditure/total revenue?
Total expenditure = Total revenue = R x Q
Total expenditure = Total revenue = P x Q
Total expenditure = Total revenue = P x R
Total expenditure = Total revenue = T x Q
What does cross elasticity of demand measure?
Measure the response in quantity demanded of one good when the demand for another change.
Measure the response in quality demanded of one good when the price for another change.
Measure the response in quantity demanded of one good when the price for another change.
Measure the response in quality demanded of one good when the demand for another change.
What are some examples of cross-elasticity of demand?
Families enjoy spending money at restaurants with special deals.
High negative cross elastic and demand for high negative cross elasticity between meal prices and demand for drinks = increased demand for drinks, a decrease in revenue from food sales.
If the price of coffee increases, then the demand for filters would reduce because the demand for coffee will reduce.
When the price of petrol increases, the demand for cars decreases.
What occurs if YED is greater or smaller than 1?
YED > 1, demand is expected to grow rapidly than consumer income. This usually happen in times of sustained economic growth.
YED > 1, demand is expected to grow rapidly than consumer income. This usually happen in times of bad economic growth.
YED < 1 (inferior goods), firms expect their sales to decline when the economy is not doing well. However, at times of recession, the demand for their products decreases.
YED < 1 (inferior goods), firms expect their sales to decline when the economy is doing well. However, at times of recession, the demand for their products increases.
What is XED used for?
Identify products that are most complementary and help company introduce a pricing system to earn less profit/revenue.
Find products that are most complementary and help company introduce a pricing system to earn more profit/revenue.
Identify products that are most complementary and help company introduce a pricing system to earn more profit/revenue.
Find products that are most complementary and help company introduce a pricing system to earn less profit/revenue.
What is De?
Relatively price inelastic over the relevant price range, and quantity falls
Relatively price inelastic over the relevant demand range, and quantity falls
Relatively price elastic over the relevant demand range, and quantity falls
Relatively price elastic over the relevant price range, and quantity falls
What is Di?
Relatively price inelastic over the relevant price range and the quantity traded falls
Relatively price inelastic over the relevant demand range and the quantity traded falls
Relatively price elastic over the relevant demand range and the quantity traded falls
Relatively price elastic over the relevant price range and the quantity traded falls
What do you have to be careful of when calculating the PED value accurately?
Elasticity seen as estimates to measure change in the prices
The longer the time span, the more unreliable the data is
Datas from research reports and survey are costy and unreliable
The values being repeated on the database
