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Questions and Answers
What does the Price Elasticity of Demand (PED) measure?
What does the Price Elasticity of Demand (PED) measure?
When is demand for a good/service unitary elastic?
When is demand for a good/service unitary elastic?
What term is used to describe the concept of measuring the sensitivity of consumer demand to a change in the price of a good/service or to a change in income?
What term is used to describe the concept of measuring the sensitivity of consumer demand to a change in the price of a good/service or to a change in income?
What is the relationship between the percentage change in price and the percentage change in quantity demanded when demand is unitary elastic?
What is the relationship between the percentage change in price and the percentage change in quantity demanded when demand is unitary elastic?
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What is the purpose of measuring elasticity?
What is the purpose of measuring elasticity?
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What is a characteristic of a good with perfectly inelastic demand?
What is a characteristic of a good with perfectly inelastic demand?
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Why does the government put indirect taxes on goods with relatively inelastic demand?
Why does the government put indirect taxes on goods with relatively inelastic demand?
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What is true about the demand for a good with relatively inelastic demand?
What is true about the demand for a good with relatively inelastic demand?
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What is an example of a good with perfectly inelastic demand?
What is an example of a good with perfectly inelastic demand?
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What type of goods does the government tend to put indirect taxes on?
What type of goods does the government tend to put indirect taxes on?
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Study Notes
Price Elasticity of Demand (PED)
- Measures the percentage change in the quantity demanded of a good/service in response to a percentage change in price.
- Refers to the degree of sensitivity or responsiveness of consumer demand to: • A change in the price of a good/service • A change in income
Types of Elasticity
Unitary Elastic
- Demand for a good/service is unitary elastic when: • The percentage change in the quantity demanded equals the percentage change in price
Elasticity of Demand
- Perfectly inelastic demand means there is no change in the quantity demanded when there is a price change.
- Example: a patient with high blood pressure would continue to buy their essential medication at the same quantity, even if the price increases in all pharmacies.
Relatively Inelastic Demand
- Goods with relatively inelastic demand are often targeted by the government for indirect taxes.
- Examples of such goods include fuel and tobacco products.
- The goal of taxing these goods is to discourage consumption.
- The government can raise significant revenue by taxing these goods, as the fall in demand is outweighed by the rise in price.
- Demand is relatively inelastic if the percentage change in price is greater than the percentage change in quantity demanded.
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Description
Test your understanding of Price Elasticity of Demand, including unitary elasticity, and how it affects consumer demand in microeconomics.
