The information indicates that the price elasticity of demand (PED) is negative and greater than -1. The percentage decrease in quantity demanded (8%) is less than the percentage change in price (which would be positive). Therefore, the absolute value of the PED is greater than 1, meaning the demand is elastic.

Significance of Relative Percentage Changes: The fact that the percentage change in quantity demanded (8%) is less than the percentage change in price indicates that consumers are relatively sensitive to price changes. A small price increase leads to a proportionally larger decrease in quantity demanded.

Size and Sign of the Coefficient: The negative sign confirms the law of demand – as price increases, quantity demanded decreases. The magnitude (absolute value) of the PED being greater than 1 signifies that the demand is elastic. This means that a change in price will have a significant impact on the quantity demanded.

Implications for the Firm: For a firm selling this good, the elastic demand has important implications. If the firm increases the price, the resulting decrease in quantity demanded will lead to a decrease in total revenue. Conversely, if the firm lowers the price, the resulting increase in quantity demanded will lead to an increase in total revenue. The firm needs to carefully consider the cost of producing the good and the potential impact on profit when deciding on a pricing strategy. The firm should consider the elasticity of demand when setting prices to maximize revenue.

Answer: Income elasticity of demand (YED) measures the responsiveness of quantity demanded to a change in consumer income. For essential goods like bread and milk, the YED is typically negative and less than 1 (inferior goods). This means that as income rises, demand for these goods falls.

This occurs because essential goods are necessities. Even when income increases, consumers will prioritize spending on higher-quality or more desirable alternatives. They will switch from cheaper, essential items to more expensive, premium products. For example, someone with a higher income might switch from basic bread to artisan bread or from powdered milk to organic milk.

Exceptions to the rule:

• Low-income households: For very low-income households, even essential goods represent a significant portion of their budget. Demand for these goods may be relatively stable, even with moderate income increases.
• Specific health needs: If an essential food item is crucial for health reasons (e.g., specific dietary requirements), demand might be less responsive to income changes.
• Limited alternatives: If there are few affordable alternatives to an essential good, demand may remain relatively stable even with income increases.

Answer: The price elasticity of demand for petrol differs significantly between the short run and the long run.

Short Run: Relatively Inelastic In the short run, the demand for petrol is relatively inelastic. This is because:

• Necessity: Petrol is a necessity for many people to commute to work, school, and for essential activities. People have limited alternative transportation options in the short term.
• Limited Substitutes: While public transport, cycling, and carpooling exist, they are not always readily available or convenient for everyone. Switching to these alternatives takes time and planning.
• Habitual Consumption: People are accustomed to using petrol and may not easily change their driving habits.

Long Run: Relatively Elastic In the long run, the demand for petrol becomes more elastic. This is because:

• Adaptation and Innovation: Consumers have more time to adapt to higher petrol prices. This could involve purchasing more fuel-efficient vehicles, moving closer to work, or using public transport.
• Technological Substitutes: The long run allows for the development and adoption of alternative technologies, such as electric vehicles, which can reduce reliance on petrol.
• Changes in Urban Planning: Long-term urban planning can lead to more walkable and bikeable cities, reducing the need for petrol-powered vehicles.

Impact on Government Policy:

The difference in elasticity affects government policy decisions regarding petrol taxation.

• Short Run Taxation: In the short run, increasing petrol taxes will likely lead to a relatively small decrease in consumption. The government might be able to raise revenue without significantly impacting people's ability to travel.
• Long Run Taxation: In the long run, increasing petrol taxes will likely lead to a larger decrease in consumption as consumers have more time to adapt. The government may face political opposition if taxes are perceived as overly burdensome. The government might consider policies to encourage the shift to alternatives (e.g., subsidies for electric vehicles) to mitigate the negative impacts of taxation.