Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics Theme 1 > 1.2.3- Price, Income And Cross Elasticities Of Demand > Flashcards

1.2.3- Price, Income And Cross Elasticities Of Demand Flashcards

1
Q

What is price elasticity of demand?

A

Measures the responsiveness of the quantity demanded of a good or service to changes in its price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the formula for PED?

A

%change in quantity demanded / %change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is a price elastic good?

A

When the change in quantity is very responsive to a change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is PED for a price elastic good?

A

PED>1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a price in elastic good?

A

A god that has a demand that is relatively unresponsive to a change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the PED for a price in elastic good?

A

PED <1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a unitary elastic good?

A

A good that has a change in demand that is equal to the change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is PED for a unitary elastic good?

A

PED=1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is a perfectly inelastic good?

A

A good that has a demand which doesn’t change when price changes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is PED for a perfectly inelastic good?

A

PED=0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is a perfectly elastic good?

A

A good that has a demand which falls to zero when price changes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is PED for a perfectly elastic good?

A

PED=infinity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What factors influence PED?

A

-necessity
-substitutes
-time
-addictives
-proportion of income spent on the good
-peak and off peak demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How does necessity influence PED?

A

-a necessary good will have a relatively inelastic demand
-luxury goods are more elastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How do substitutes influence PED?

A

-if a good has several substitutes that are close and available, the demand is more price elastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How does time influence ped?

A

The longer the time, the easier it will be for a person to find an alternative so price becomes more elastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How does addictiveness affect PED?

A

If a product is addictive its price inelastic

18
Q

How does the proportion of income spent on the good influence PED?

A

If the good represents a small percentage, demand is likely to be price inelastic

19
Q

How does peak and off peak demand influence PED?

A

During peak times train tickets are price inelastic

20
Q

Why is PED significant?

A

-determines the effects of the imposition of indirect taxes
-the more elastic it is, the lower the incidence of tax on the consumer

21
Q

Who is the tax passed onto when demand is inelastic?

A

Onto the consumer

22
Q

How do subsidies affect elastic goods?

A

The consumer sees a small fall in price whilst the producer gains a lot in extra revenue

23
Q

What happens to revenue when price decreases for an elastic good?

A

Revenue increases

24
Q

What happens to revenue when price decreases for inelastic goods?

A

Revenue decreases

25
Q

What happens to revenue when price decreases for a unitary good?

A

A change in price doesn’t affect revenue

26
Q

What is income elasticity of demand?

A

Measures how a change in income can affect a change in quantity demanded for a given product or service

27
Q

What is the formula for YED?

A

YED= %change in quantity demanded/ %change in income

28
Q

What are inferior goods?

A

Demand falls when income increases

29
Q

What is the YED for inferior goods?

A

YED<0

30
Q

What are normal goods?

A

When demand increases income increases

31
Q

What is YED for a normal goods?

A

YED >0

32
Q

What are luxury goods?

A

When income increases, it causes an even bigger increase in demand

33
Q

What is YED for luxury goods?

A

YED>1

34
Q

What is the significance of YED?

A

-helps businesses to know how their sales will be impacted
-may impact the type of goods a firm produces

35
Q

What is cross elasticity of demand (XED)?

A

Measures the degree of responsiveness of demand for a given product after a change in price for another product

36
Q

What is the formula for XED?

A

XED= %change in quantity demanded for product X/ % change in price of product Y

37
Q

What is the XED for complements?

A

XED <0

38
Q

Why is XED for complements <0?

A

An increase in the price of good B will decrease demand for good A

39
Q

What is the XED for substitutes?

A

XED>0

40
Q

What is the XED for unrelated goods?

A

XED=0

Economics Theme 1 (14 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions