1.2.3 Price, income and cross elasticities of demand Flashcards
1
Q
PED:
A
Responsiveness of demand to a change in price
2
Q
PED equation:
A
%change in QD / %change in price
3
Q
Unitary elastic:
A
= 1
4
Q
Relatively elastic:
A
> 1
5
Q
Relatively inelastic:
A
<1
6
Q
Perfectly elastic:
A
= infinity
7
Q
Perfectly inelastic:
A
= 0
8
Q
Factors influencing PED: (5)
A
- Availability of resources
- Time
- Necessity
- How large of a % of total expenditure
- Addictive
9
Q
If the demand curve is elastic, who covers most of the incidence of tax:
A
Producer
10
Q
If the demand curve is inelastic, who covers most of the incidence of tax:
A
Consumer
11
Q
If the demand curve is elastic, who covers most of the gains from a subsidy:
A
Producer
12
Q
If the demand curve is inelastic, who covers most of the gains from a subsidy:
A
Consumer
13
Q
YED:
A
responsiveness of demand to a change in income
14
Q
YED equation:
A
%change in quantity demanded / %change in income
15
Q
Inferior good:
A
- Rise in income will lead to a fall in demand for the good
- YED < 0
