Brainscape's Knowledge GenomeTM

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


See full index

Economics Unit 2 > 3 > Flashcards

3 Flashcards

1
Q

PED

A

Definition: a measure of the responsiveness of the quantity of a
good demanded to changes in its price

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

Large responsiveness of quantity demanded

A

Price elasticity

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

To calculate PED

A

Percentage change in quantity demanded/percentage change in price

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

Why percentage in formula for PED

A

To compare the responsiveness of quantity demanded of
different goods with no currency limitations; To measure the RELATIVE size of change

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

A luxury sports utility vehicle (SUV) retails for £40,000 in the UK in
July. 7000 SUVs are sold in July.
In August, the vehicle is marked down to £37,000. 7200 SUVs are
sold in August
Assuming no other variable changed between July and August,
how responsive are UK consumers to the change in price of this
SUV

A

The price elasticity of demand for these SUVs between 40k and 37k in the UK is -0.37%. A fall in price of 7.5 led to an increase in quantity demanded of 2.9%. Another way to interperate this is that for every 1% decrease in price, the quantity demanded increased of 0.36%

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

Inelastic demand ><

A

0<PED<1

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

Inelastic demand

A

Quantity demanded is relatively unresponsive to price

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

Elastic demand ><

A

1<PED<infinity

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

Elastic demand

A

Quantity demanded is relatively responsive to price

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

Unit elastic demand ><

A

PED=1

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

Perfectly Inelastic demand

A

PED=0

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

Perfectly Inelastic deman

A

Quantity demanded is completely unresponsive to price

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

Perfectly elastic demand ><

A

PED=infinity

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

Perfectly elastic demand

A

Quantity demanded is infinitely responsive to price

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

When PED varies on demand curve

A

On any downward-sloping, straight-line demand curve, demand is:
 Price-elastic at high prices & low quantities;
 Price-inelastic at low price & large quantities.
 At the midpoint of the demand curve, there is unit elastic demand.
Thus, the term ‘elastic’ and ‘inelastic’ should not be used to refer to an entire demand curve.
Instead, they should be used to refer to a portion of the demand curve
that corresponds to a particular price or price range

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

Determinants of PED

A

Substitues, proportion of income, luxury or necessity, addictive or not, time to respond

17
Q

Substitutes

A

Number & Closeness of
substitutes
*How broadly or narrowly we
define the good
*the more substitutes, consumers
are more responsive, the more price elastic it its deman

18
Q

Proportion of income

A

The larger the proportion of one’s income needed to buy a good,
The impact is more significant,
the more price elastic the demand

19
Q

Luxury or necessity

A

More luxurious,
less necessary,
more price elastic

20
Q

Addictive or not

A

The greater the degree of addition to a substance,
The more price inelastic is the demand

21
Q

Time to respond

A

Longer time period in which a consumer makes
a purchasing decision, the more price elastic
the demand

22
Q

Total revenue

A

The amount of money received by firm when they sell a good or service

23
Q

How Total revenue is calculates

A

P*Q

24
Q

PED>1 effect on total revenue

A

Price increases, TR decreases and vice versa

25
Q

PED<1 effect on total revenue

A

Price increases, TR increases and vice versa

26
Q

PED = 1

A

Price changes, TR remains constant

27
Q

How does total revenue look on a PED graph

A

Total revenue is at a maximum when price is at the point where demand is
unit elastic

28
Q

What relates to profit

A

Nothing

29
Q

Primary comodities

A

Primary commodities: goods arising directly from the use of natural resources.
“Land

30
Q

Generally, primary commodities have a lower PED than manufactured
products, because

A

● they are necessities and have no substitutes

31
Q

How government tex revenue is dependant on PED

A

○ The lower the price elasticity of demand of the taxed good, the greater the
government tax revenues

32
Q

● What type of goods government would like to impose indirect
taxes

A

Goods with low PED

Economics Unit 2 (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions