1) Elasticity Diagrams - MMT

Question 1

PED diagram:
when demand is price elastic:

Answer 1

(change in quantity is more significant than the change in price)… the demand curve is pretty flat, only a slight downward slope

Question 2

PED diagram:
when demand is price elastic, why is the demand curve pretty flat?

Answer 2

this is because the variations in price are relatively smaller than in Qd

Question 3

PED diagram:
when demand is price inelastic

Answer 3

relatively big changes in price lead to relatively small changes in quantity, this is shown by D curves tending to the vertical

Question 4

PES diagram:
when supply is price elastic

Answer 4

(change in quantity is more significant than change in price).. the supply curve is pretty flat, only a slightly upward slope

Question 5

PES diagram:
when supply is price elastic, why is the supply curve pretty flat?

Answer 5

this is because the variations in price are relatively smaller than in Qs

Question 6

PES diagram:
when supply is price inelastic

Answer 6

relatively big changes in price lead to relatively small changes in quantity, this is shown by S curves tending to the vertical

Question 7

YED diagram:
what is an important thing to bear in mind?

Answer 7

the axes show P and Q, however P has not changed here, Y has!!!

Question 8

YED diagram:
normal good with an increase in income

Answer 8

an increase in income will shift D to the right

Question 9

YED diagram:
normal good with an increase in income but income ELASTIC

Answer 9

means a BIG shift of the D curve to the right

Question 10

YED diagram:
normal good with an increase in income but income INELASTIC

Answer 10

means a SMALL SHIFT of the D curve to the right

Question 11

YED diagram:
an inferior good with an increase in income:

Answer 11

shift D to the left

Question 12

YED diagram:
a normal good with a decrease in income, elastic and inelastic:

Answer 12

income elastic: big shift left
income inelastic: small shift left

Question 13

YED diagram:
an inferior good with a decrease in income:

Answer 13

D shifts to the right

Question 14

XED diagram:
why is only ever a shift like YED?

Answer 14

the price of the good has not altered, , therefore the D curve will shift either left or right depending on what’s happened to the other good

Question 15

XED diagram:
an increase in price of the substitutes

Answer 15

sends D to the right

Question 16

XED diagram:
a decrease in price of the substitutes

Answer 16

sends D to the left

Question 17

XED diagram:
increase in the price of a complement

Answer 17

send D curve for our product to the left

Question 18

XED diagram:
decrease in the price of a complement

Answer 18

send D curve for our product to the right

Question 19

what is total revenue?

Answer 19

is the total amount of money that a business receives from selling its product
eg a small sop, the value of the reciepts in the till at the close of business

Question 20

how do you calculate total revenue (TR)?

Answer 20

P X Q, the quantity of goods you sell X the price you sell them for

Question 21

how do you calculate profit?

Answer 21

Profit = TR - TC (total cost), TR will be higher than profit, if TR is lower than TC we make a loss

Question 22

how do we show TR on a diagram?

Answer 22

TR = P X Q, can be shown by the area of the PQ rectangle, the bigger the area of the rectangle, the higher the TR

Question 23

what is the link between PED and TR if demand is Price Elastic?

Answer 23

the change in price will be opposite to the change in TR, so increased prices reduce TR, reduce prices to increase TR

Question 24

what is the link between PED and TR if demand is Price Inelastic?

Answer 24

Price and TR move the same way: i.e. higher price = higher TR, lower price = lower TR