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A Level Economics - Micro > 3.2 Price, Income And Cross Elasticities Of Demand > Flashcards

3.2 Price, Income And Cross Elasticities Of Demand Flashcards

1
Q

Definition of elasticity

A

The responsiveness of one variable to changes in another

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2
Q

Definition of elastic demand

A

Customers will react more to a change in price

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3
Q

Definition of inelastic demand

A

Customers will react less to a change in price

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4
Q

Definition of unitary demand

A

An increase in sales exactly offsets a decrease in prices and revenue is unchanged

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5
Q

Definition of price elasticity of demand

A

The responsiveness of demand for a product to a change in its price

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6
Q

Equation for price elasticity of demand

A

% change in demand
——————————
% change in price

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7
Q

What does a result of +1 mean? (Excluding the minus sign)

A

Elastic demand

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8
Q

What does a result of 0 to 1 mean?

A

Inelastic demand

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9
Q

What does a result of exactly 1 mean?

A

Unitary demand

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10
Q

Definition of income elasticity of demand

A

The responsiveness of quantity demand for a good to a change in income

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11
Q

Equation for income elasticity of demand

A

% change in quantity demand
——————————————
% change in income

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12
Q

What does it mean if YED is greater than 1?

A

Luxury good and income elastic

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13
Q

What does it mean if YED is between 1 and 0?

A

Normal good and income inelastic

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14
Q

What does it mean if YED is less than 0?

A

Inferior food and negative income inelastic

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15
Q

Definition of cross elasticity of demand

A

The responsiveness of demand for a good in response to a change in the price of another good

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16
Q

Cross elasticity of demand equation

A

% Change in qty demanded of product A
————————————
% Change in price of product B

17
Q

What is the link between price elasticity of demand and total revenue

A
  • if demand is price elasticity a reduction in price leads to an increase in total revenue and a price increase leads to a reduction in total revenue
  • if demand is price inelastic a reduction in price leads to a decrease in total revenue and a price increase leads to an increase in total revenue
18
Q

What does a positive cross elasticity of demand mean?

A

That products A and B are substitute goods

19
Q

What are the determinants of price elasticity of demand

A
  • necessity
  • substitutes
  • addictiveness
  • proportion of income spent
  • durability of the good
  • peak and off-peak demand
20
Q

What does a negative cross elasticity of demand mean?

A

Products A and B are complements

21
Q

What is the anagram for determinants of PED

A

NASP PD

A Level Economics - Micro (15 decks)

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