📚 Topic Summary
Understanding how price changes affect the quantity demanded is key in economics. Price Elasticity of Demand (PED) is influenced by several factors. Goods with readily available substitutes tend to have higher PED because consumers can easily switch to alternatives if the price increases. Necessities, like essential medicine, usually have lower PED because people will continue to buy them regardless of price. Income affects demand depending on whether a good is normal or inferior. Finally, time plays a role; the longer the time period, the more elastic the demand, as consumers have more time to adjust their consumption habits.
🧠 Part A: Vocabulary
Match the following terms with their definitions:
| Term |
Definition |
| 1. Substitute Good |
a. A good that consumers will continue to purchase regardless of price changes. |
| 2. Necessity |
b. A good whose demand increases when consumer income increases. |
| 3. Income Elasticity of Demand |
c. The responsiveness of the quantity demanded to a change in consumer income. |
| 4. Normal Good |
d. A good that can be used in place of another. |
| 5. Inferior Good |
e. A good whose demand decreases when consumer income increases. |
(Answers: 1-d, 2-a, 3-c, 4-b, 5-e)
📝 Part B: Fill in the Blanks
Complete the following paragraph using the words: elastic, inelastic, substitutes, income, time.
If a product has many close ___________, its demand is likely to be more ___________. Demand for necessities tends to be ___________. Consumer ___________ also impacts demand, especially for normal and inferior goods. The amount of ___________ consumers have to react to a price change also affects elasticity.
(Answers: substitutes, elastic, inelastic, income, time)
🤔 Part C: Critical Thinking
Imagine the price of gasoline suddenly doubles. How would the price elasticity of demand for gasoline change over time (e.g., one week vs. one year)? Explain your reasoning.