How to answer elasticity questions
Answering Elasticity questions:
Using technique DEED as for all other questionsD- define E- explain E- example D- diagram
YED = % Change in demand divided by the % change in income
1. Identify wether the good is normal or inferior and define why it is this typeNormal good = increase income, increase quantity demanded (eg. petrol/clothing)Inferior good = increase income, decrease quantity demanded (eg. Tesco value chocolate)Luxury good = increase income, increase % of income spent (eg. HD TV)
2. Diagram + explanation
XED = % Change in price of good A divided by the % change in quantity demanded for good B
1. Identify wether the good is a complement or a substitute and define why it is this typeComplement good = if the price of good A increases, quantity demanded of good B also increases if the price of good A falls, quantity demanded of good B also falls (eg. Tennis rackets and tennis balls)Substitue good = if the price of good A increases, quantity demanded of good B falls if the price of good A falls, quantity demanded of good B increases (eg. Tea and coffee)
2. Diagram + explaination
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