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Economics A-Level > 1.2 How markets work (1.2.3-1.2.5) > Flashcards

1.2 How markets work (1.2.3-1.2.5) Flashcards

1
Q

What is Price Elasticity of Demand?

A

it measures the responsiveness of quantity demanded to a change in price

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2
Q

What is the formula for PED?

A

% change in quantity demanded ÷ % change in price

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3
Q

When PED > 1 what kind of demand is this?

A

Elastic demand

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4
Q

When PED < 1, what kind of demand is this?

A

Inelastic demand

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5
Q

When PED = 1, what is this?

A

Unitary Elasticity

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6
Q

Why is PED always a negative number?

A

Due to the law of demand, as price goes up quantity demanded goes down

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7
Q

What is the formula for income elasticity of demand?

A

% change in quantity demanded ÷ % change in income

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8
Q

What does YED mean?

A

Income elasticity of demand

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9
Q

What kind of income elasticity do normal goods have?

A

A positive income elasticity, where YED > 0

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10
Q

What kind of income elasticity do inferior goods have?

A

A negative income elasticity, where YED < 0

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11
Q

What is cross-price elasticity of demand?

A

When a change in the price of one good, can change the quantity demanded of another

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12
Q

What is the formula for cross-price elasticity of demand?

A

% change in quantity demanded of good A ÷ % change in price of good B

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13
Q

What does XED mean?

A

Cross-price elasticity of demand

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14
Q

If XED is positive, what are the goods?

A

substitutes

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15
Q

If XED is negative, what are the goods?

A

complements

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16
Q

What would a XED close to 0 suggest?

A

that the goods are unrelated

17
Q

What does YED measure?

A

it measures the responsiveness of quantity demanded, given a change in income

18
Q

What does XED measure?

A

it measures the responsiveness of quantity demanded of a good/service given a change in price of another

19
Q

How would a perfectly inelastic demand curve look like on a diagram?

A

it would look vertical as the quantity demanded would be the same regardless of the price

20
Q

What is the PED for perfectly inelastic demand?

A

PED = 0

21
Q

What is perfectly elastic demand?

A

Where any price increase would cause demand to drop to 0

22
Q

What factors affects the elasticity of demand? (4)

A
  • availability of substitute goods/services
  • percentage of income and time
  • impact of subsidies
  • type of good (addictive)
23
Q

What is the equation for total revenue?

A

price per unit x quantity

24
Q

If demand is inelastic, how should a firm change their price to maximize revenue?

A

raise their price

25
Q

What is revenue?

A

the total amount of money brought in by a company’s operations

Economics A-Level (6 decks)

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