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AQA Economics AS Microeconomics Price Elasticity of Demand

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AQA Economics AS Microeconomics Price Elasticity of Demand

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Questions and Answers

Which type of goods have a Cross-Price Elasticity of Demand (XED) equal to zero?

Substitute goods

Unrelated goods (correct)

Inferior goods

Complementary goods

What happens to the Quantity Demanded (QD) of good Y if the price of a weak complement good X falls significantly?

No change in QD of Y

Large increase in QD of Y

Decrease in QD of Y

Small increase in QD of Y (correct)

Why are firms interested in understanding Cross-Price Elasticity of Demand (XED)?

To assess the impact of their advertising campaigns

To predict future demand trends accurately

To monitor their production costs

To determine how many competitors they have (correct)

Which situation describes close substitutes?

Small increase in the price of X leads to a large increase in QD of Y Signup and view all the answers

In the context of substitutes, what does an upward-sloping demand curve indicate?

Positive Cross-Price Elasticity of Demand (XED) Signup and view all the answers

What is the price elasticity of demand (PED) for a price elastic good?

Greater than 1 Signup and view all the answers

In the context of luxury goods, what does a YED greater than 1 indicate?

Demand increases more than proportionately with an increase in income Signup and view all the answers

What does a price inelastic good signify?

The demand is relatively unresponsive to a change in price Signup and view all the answers

When two goods are complements, what does a negative cross elasticity of demand (XED) indicate?

Increase in the price of one good leads to a decrease in demand for the other Signup and view all the answers

What is the significance of a YED less than 1 for a normal good?

The good is inferior Signup and view all the answers

For close complements, what happens when the price of one good decreases?

Quantity demanded for one good increases and the other decreases Signup and view all the answers