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Microeconomics year 1 > 2.2 Price, income and cross elasticities of demand > Flashcards

2.2 Price, income and cross elasticities of demand Flashcards

1
Q

What is elasticity theory?

A

Looks at the sensitivity of one variable in relation to another

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2
Q

What is the equation for price elasticity of demand?

A

% change in quantity demand / % change in price

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3
Q

What is the equation for income elasticity of demand?

A

% change in quantity demanded / % change in income

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4
Q

What is the equation for cross elasticity of demand?

A

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

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5
Q

What does a PED coefficient of 0 mean?

A

Perfectly elastic

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6
Q

What does a PED coefficient of 0-1 mean?

A

Price inelastic

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7
Q

What does a PED coefficient of 1 mean?

A

Unitary elasticity

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8
Q

What does a PED coefficient of 1 to infinity mean?

A

Price elastic

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9
Q

What is a normal good?

A

As income rises, you consume more (and vice versa)

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10
Q

What is an inferior good?

A

As income rises, you consume less (and vice versa)

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11
Q

Products households tend to spend a higher percentage of their income on are more likely to be price (elastic/inelastic)?

A

Elastic

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12
Q

If a product has a positive YED what type of good does that mean it is?

A

Normal good

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13
Q

If a product has a negative YED what type of product does that mean it is?

A

Inferior good

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14
Q

If a product has a YED of between 0-1 does that mean it’s a necessity or luxury?

A

Necessity

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15
Q

If a product has a YED of between >1 does that mean it’s a necessity or luxury?

A

Luxury

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16
Q

What is a substitute good?

A

Price of good A increases, demand for good B goes up.

17
Q

What is a complimentary good?

A

Price of good A increases, demand for good B decreases

18
Q

If a product has a positive CED what type of good does that mean it is?

A

Substitute good

19
Q

If a product has a negative CED what type of good does that mean it is?

A

Complimentary good

20
Q

If a product has a CED of between -1 and 1 does that mean it’s a close or not close good. (Substitute or complementary)

A

Not close
(Positive - substitute)
(Negative - complimentary)

21
Q

If a product has a CED of less than -1 or more than +1 does that mean it’s a close or not close good. (Substitute or complementary)

A

Close
(Positive - substitute)
(Negative - complimentary)

22
Q

What is price elasticity of demand?

A

Responsiveness of demand based on change in price

23
Q

What is income elasticity of demand?

A

Responsiveness in demand based on income changes

24
Q

What is cross-elasticity of demand?

A

Responsiveness of demand based on the change in price of another good

25
Q

What is a necessity good?

A

You have to buy regardless of income

26
Q

What is a luxury good?

A

You tend to consume more as income rises

Microeconomics year 1 (31 decks)

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