economics

PRICE ELASTICITY OF DEMAND (PED) SHOWS HOW

• A CHANGE IN INCOME AFFECTS THE PRICE OF A PRODUCT
• A CHANGE OF PRICE AFFECTS THE QUANTITY OF THE PRODUCT DEMANDED
• A CHANGE IN PRICE AFFECTS THE LEVEL OF PROFITS FOR A FIRM
• A CHANGE IN DEMAND AFFACETS THE PRICE OF A PRODUCT

WHAT IS THE FORMULA FOR PED?

• % CHANGE IN INCOME / % CHANGE IN PRICE
• % CHANGE IN QUANTITY DEMANDED / % CHANGE IN PRICE
• % CHANGE IN PRICE / % CHANGE IN QUANTITY DEMANDED
• % CHANGE IN QUANTITY DEMANDED / % CHANGE IN INCOME

A BUSINESS REDUCES THE PRICE OF A PRODUCT FROM £10 TO £7. AS A RESULT DEMAND INCREASES FROM 10,000 TO 12,000 UNITS. CALCULATE PED FOR THE PRODUCT.

• - 0.67
• - 1.2
• 0.67
• 1.2

IF A PRODUCT HAS PED OF - 0.6 WHAT WILL HAPPEN TO QUANTITY DEMANDED IF PRICE RISES BY 15%?

• DEMAND INCREASES BY 9%
• DEMAND DECREASES BY 9%
• DEMAND DECREASES BY 13%
• DEMAND DECREASES BY 25%

A RETAILER RISES THE PRICES OF ITS PRODUCTS BY 15% IN THE HOPE OF INCREASING ITS REVENUE. HOWEVER REVENUE ACTUALLY FALLS. WHAT IS THE BEST EXPLANATION FOR THIS?

• THAT PED IS GREATER THAN 1
• THAT PED IS LESS THAN 1
• THAT PED IS EQUAL TO 1

WHICH OF THESE STAEMENTS CONCERNING PED ARE TRUE?

• PRODUCTS THAT ARE CONSUMED OUT OF HABIT TEND TO HAVE A HIGHER PRICE ELASTICITY
• THE LESS NECESSARY A PRODUCT THE MORE DEMAND TENDS TO BE PRICE INELASTIC
• PRODUCTS WITH A STRONG BRAND LOYALTY TEND TO BE PRICE INELASTIC

IF A PRODUCT HAS A PED OF -1.5, WHAT WILL HAPPEN TO QUANTITY DEMANDED IF PRICE FALLS BY 10%?

• DEMAND INCREASES BY 15%

• DEMAND DECREASES BY 15%

• DEMAND INCREASES BY 10%

• DEMAND DECREASES BY 10%

WHAT DOES A PED VALUE OF 0 INDICATE ABOUT A PRODUCT'S DEMAND?

• DEMAND IS ELASTIC

• DEMAND IS PERFECTLY ELASTIC

• DEMAND IS PERFECTLY INELASTIC

• DEMAND IS UNITARY ELASTIC

A COMPANY LOWERS THE PRICE OF ITS SERVICE BY 20% AND SEES AN INCREASE IN REVENUE. WHAT CAN BE INFERRED ABOUT THE PED?

• PED IS ZERO

• PED IS LESS THAN 1

• PED IS EQUAL TO 1

• PED IS GREATER THAN 1

Which of the following is an example of a ‘need’ rather than a ‘want’?

• Apple Juice
• Lemonade
• Water
• Coca Cola