Price Elasticity of Demand Examples: What Makes Products Elastic?

📚 Quick Study Guide

• 💰 Price Elasticity of Demand (PED) measures the responsiveness of the quantity demanded of a good or service to a change in its price.
• ✏️ The formula for PED is: $PED = \frac{\% \ Change \ in \ Quantity \ Demanded}{\% \ Change \ in \ Price}$
• 📈 If |PED| > 1, demand is elastic (sensitive to price changes).
• 📉 If |PED| < 1, demand is inelastic (not sensitive to price changes).
• ↔️ If |PED| = 1, demand is unit elastic.
• Factors affecting PED include: availability of substitutes, necessity vs. luxury, proportion of income spent on the good, and time horizon.
• ⏰ In the long run, demand tends to be more elastic as consumers have more time to find substitutes.

Practice Quiz

1. What does Price Elasticity of Demand measure?
   1. A. The change in price due to a change in supply.
   2. B. The responsiveness of quantity demanded to a change in income.
   3. C. The responsiveness of quantity demanded to a change in price.
   4. D. The change in supply due to a change in demand.
2. If the Price Elasticity of Demand for a product is 2.5, the demand is:
   1. A. Perfectly Inelastic
   2. B. Inelastic
   3. C. Unit Elastic
   4. D. Elastic
3. Which of the following goods is most likely to have inelastic demand?
   1. A. Designer Handbags
   2. B. Gasoline
   3. C. Movie Tickets
   4. D. Restaurant Meals
4. If a company increases the price of its product and total revenue decreases, the demand for the product is likely:
   1. A. Inelastic
   2. B. Unit Elastic
   3. C. Elastic
   4. D. Perfectly Inelastic
5. Which of the following factors tends to make demand more elastic?
   1. A. Few substitutes available
   2. B. The good is a necessity
   3. C. Short time horizon
   4. D. Many substitutes available
6. If the price of a product increases by 10% and the quantity demanded decreases by 5%, what is the Price Elasticity of Demand?
   1. A. 0.5
   2. B. -0.5
   3. C. 2
   4. D. -2
7. Which of the following is an example of a product with relatively elastic demand?
   1. A. Life-saving medication
   2. B. Salt
   3. C. Luxury watches
   4. D. Electricity