IB Economics SL 2.5 Elasticities of demand Question Bank

Explain two reasons why the demand for manufactured goods might be price elastic.

A fall in income leads to a fall in demand for a good. Explain this relationship between the demand for the good and consumer income.

Explain why an increase in incomes over time may lead to an increase in demand for some goods but a decrease in demand for other goods.

Explain how a decrease in income might affect the demand for normal goods and the demand for inferior goods.

Explain how the availability of substitutes for a good and whether a good is a necessity affect its price elasticity of demand.

Using real-world examples, examine the importance of price elasticity of demand to firms and to governments.

Discuss the significance of price elasticity of demand for firms that produce luxury cars and firms that produce less expensive cars.

Explain how the price elasticity of demand for a good might be affected by the number and closeness of substitutes.

Examine the significance of price elasticity of demand for the decision making of firms and government.

Explain how the value of the cross price elasticity of demand (XED) for a particular good is determined by its relationship to other goods.

Discuss the importance of price elasticity of demand and cross price elasticity of demand for a firm's decision making.

Using real-world examples, evaluate the view that an understanding of price elasticity of demand can be useful for firms trying to increase total revenue.