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How does PED affect the effectiveness of a price ceiling?
If demand is inelastic, a price ceiling will have a smaller impact on quantity demanded and may not be very effective in addressing shortages.
How does PED influence the impact of a subsidy on consumer prices?
If demand is inelastic, consumers will see a smaller decrease in price from a subsidy compared to when demand is elastic.
What happens when the government imposes a tax on a good with elastic demand?
The quantity demanded will decrease significantly, and the government may not collect much tax revenue.
How does PED affect the success of policies aimed at reducing consumption of harmful goods?
If demand is inelastic, policies like taxes or regulations may be less effective in reducing consumption.
How does PED impact the effectiveness of agricultural price support programs?
If demand is inelastic, price supports can lead to large surpluses, as quantity demanded does not decrease much with higher prices.
What is the effect of a price floor on goods with elastic demand?
A price floor will lead to a large surplus, as the quantity demanded decreases significantly at the higher price.
How does PED relate to the effectiveness of advertising campaigns?
Advertising campaigns aim to make demand more inelastic, so that firms can raise prices without significantly reducing quantity demanded.
How does PED affect the welfare impact of trade policies?
The welfare impact of tariffs and quotas depends on the elasticity of demand and supply in the affected markets.
How does PED affect the impact of minimum wage laws?
If demand for labor is inelastic, minimum wage laws will have a smaller impact on employment than if demand is elastic.
How does PED influence the effectiveness of policies aimed at promoting energy conservation?
If demand for energy is inelastic, policies like carbon taxes may be less effective in reducing energy consumption.
What does a vertical demand curve indicate about PED?
Perfectly inelastic demand (Ed = 0).
What does a horizontal demand curve indicate about PED?
Perfectly elastic demand (Ed = ∞).
How does the steepness of a demand curve relate to its elasticity?
Steeper demand curves tend to be more inelastic, while flatter demand curves tend to be more elastic.
On a graph, how is total revenue represented?
The area of the rectangle formed by the price and quantity at a given point on the demand curve.
How can you visually determine if demand is elastic or inelastic using the total revenue test on a demand curve?
Compare the total revenue rectangles at two different price points. If TR increases with a price decrease, demand is elastic. If TR decreases with a price decrease, demand is inelastic.
How is consumer surplus affected by a more elastic demand curve?
Consumer surplus is larger with a more elastic demand curve, as consumers are more sensitive to price changes and benefit more from lower prices.
What does a demand curve that shifts dramatically with a small price change suggest?
A very elastic demand.
What does a demand curve that barely shifts with a large price change suggest?
A very inelastic demand.
How does the slope of a demand curve relate to PED?
The slope is not the same as PED, because elasticity is based on percentage changes, not absolute changes.
How does the shape of the demand curve affect total revenue?
The shape affects how total revenue changes as price changes. Elastic portions of the curve will see TR move inversely with price, while inelastic portions will see TR move in the same direction as price.
What is Price Elasticity of Demand (PED)?
Measures how sensitive consumers are to changes in the price of a good or service.
Define 'elastic' demand.
Quantity demanded is highly responsive to price changes.
Define 'inelastic' demand.
Quantity demanded is not very responsive to price changes.
What is perfectly inelastic demand?
Quantity demanded does not change regardless of price changes (Ed = 0).
What is perfectly elastic demand?
Quantity demanded is infinitely responsive to price changes (Ed = ∞).
Define unit elastic demand.
Quantity demanded changes proportionally to price changes (Ed = 1).
What is Total Revenue (TR)?
The amount of money a business brings in from sales: TR = P * Q.
Define price-sensitive.
Describes consumers whose quantity demanded changes drastically with price changes.
What is the Price Elasticity of Demand coefficient?
A numerical representation of the price elasticity of demand, calculated as (% Change in Quantity Demanded) / (% Change in Price).
Define relatively inelastic demand.
Demand where the price elasticity of demand coefficient is between 0 and 1 (0 < Ed < 1).