2) What Factors determine Elasticity? - MMT Flashcards

1
Q

what’s the strongest determinant of a products PED?

A

its degree of substitutability

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

PED:
if there are lots of close substitutes available then demand for a product will tend to be highly price…

A

elastic

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

PED:
if there aren’t lots of close substitutes available then demand may well be price…

A

inelastic

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

PED:
luxury goods: elastic or inelastic?

A

elastic

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

PED:
necessity : elastic or inelastic?

A

inelastic

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

PED:
habit forming products (eg cigarettes) : elastic or inelastic?

A

tending to be price inelastic ( so taxed heavily by governments)

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

PED:
branded goods : elastic or inelastic?

A

more price inelastic eg Heinz baked beans

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

PED:
Time: elastic or inelastic?

A

over time, services like electricity, phone contracts become more price elastic as in the short- term customers may be tied to a contract

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

PED:
why is substitutability key?

A

the factors (luxury, necessities, habit forming products, branded goods, time) are underpinned by the availability or lack of substitutes

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

PES:
what is the biggest single factor determining PES

A

time

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

PES:
in the long term, almost all goods and services become…

A

elastic in supply

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

PES:
why is it that in the short term, supply can often be highly price inelastic?

A

this is because it often takes considerable time to adjust supply
eg plant different crops, change production processes etc

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

PES:
in the short term, supply can often be highly price…

A

inelastic

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

PED:
other than substitutability what are other influences on PED? (list 4 factors, could argue that they are underpinned by the availability or lack of substitutes)

A

1) luxury or necessity
2) habit forming products
3) branded goods
4) time

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

PES:
other than time, what are other factors that influence PES? (list 3 factors, could argue time underpins all of these factors)

A

1) mobility of the factors of production
2) availability of storage facilities
3) nature of the goods

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

PES:
what is an example of mobility of the factors of production?

A

eg how easily can workers be upskilled

17
Q

PES:
how could the availability of storage facilities cause supply to be more price elastic?

A

if firms can keep large stocks in the reserve the supply might be more price elastic

18
Q

PES:
nature of the goods:
give an example using short-term, long term, inelastic, elastic

A

many natural products are highly inelastic in the short term; businesses must wait for nature to run its course; however some products (eg hand sanitiser/PPE in the pandemic) were easier to transfer resources to, therefore more price elastic in supply

19
Q

YED:
what does income elasticity depend on?

A

purely determined by the nature of the good

20
Q

YED:
what are 3 examples of types of goods?

A

1) luxury goods
2) Necessities
3) very basic items/services

21
Q

YED:
are luxury goods income elastic/inelastic?

A

income elastic

22
Q

YED:
why are luxury goods considered to be income elastic?

A

this is because it is our decision to buy or not buy these goods in heavily influenced by the amount of spare RDI that consumers have at the time

23
Q

YED:
are necessities income elastic/inelastic?

A

usually income inelastic

24
Q

YED:
why are necessities usually income inelastic?

A

basic items like milk and bread are normally amongst the last things that consumers give up if RDI falls, if RDI increases, our extra demand for these items is low

25
Q

YED:
what type of good are basic items/services?

A

inferior goods

26
Q

YED:
why are basic items/services inferior goods?

A

when RDI increases we buy less of these and switch to more luxurious products; if RDI falls we buy more of these products

27
Q

XED:
what does Cross Elasticity between 2 goods depend on?

A

depends totally on the relationships between the goods (substitutes or complements)

28
Q

XED:
If the goods are substitutes there is a…(positive/negative) correlation between the goods and XED will be a.. (+/-)

A
  • positive correlation
    -> +
29
Q

XED:
what does it mean if a good is positive and has a high XED?
what does it mean if a good is positive and has a low XED?

A
  • high and positive : the more substitutable the goods the higher the XED
  • low and positive: distant substitutes will be a + but a low XED ( eg 0.2)
30
Q

XED:
If the goods are complements there is a…(positive/negative) correlation between the goods and XED will be a.. (+/-)

A
  • negative correlation
    -> minus -
31
Q

XED:
what does it mean if a good is negative and has a high XED?
what does it mean if a good is negative and has a low XED?

A
  • close complements (eg frozen chips and cooking oil/ bread and butter) will have a high XED
32
Q

XED:
are complementary relationships often quite elastic or inelastic? why?

A

quite inelastic, eg an increase in the price of new cars might not have a huge effect on current demand for petrol