3.7 - Market Data and Price Elasticity Flashcards

1
Q

What is Price Elasticity of Demand?

A

It measures the responsiveness of demand after a change in products own price

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2
Q

How do you calculate PED?

A

% change in quantity demand/ % change i price

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3
Q

What are the key factors/examples that determine PED of a product?

A
Cost of switching supplies
Availability of substitutes
Degree of necessity
Time frame when making a choice
Brand Loyalty
Percentage of income spent
Habitual demand
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4
Q

Define inelastic

A

Demand won’t be affected by change in price

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5
Q

Define elastic

A

Demand will be affected by change in price

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6
Q

What is the use of PED?

A

Knowing the potential impact of a change in price on the level of demand

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7
Q

What can firms use to estimate the PED of a product?

A

Effect of a change in price on total revenue of sales
Price volatility in a market following changes in supply
Effect of a change in indirect tax on price and quantity demanded

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8
Q

What are the limitations of Elasticities?

A

PED varied by region/time period

Elasticity will vary within product ranges

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9
Q

What is Income Elasticity of demand?

A

It measures the impact of a change in income on demand

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10
Q

What is the formula to calculate YED?

A

% change in quantity demanded/ % change in income

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11
Q

What is the range of values for Inferior goods?

A

-2 to -0.5

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12
Q

What is the range of values for Necessities?

A

0 to 1

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13
Q

What is the range of values for Luxuries?

A

1.5 to 2

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14
Q

What is Inferior Goods?

A

Demand will decline as income increases

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15
Q

What is Necessities?

A

Demand will increase moderately as income increases

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16
Q

What is Luxuries?

A

Demand will strongly increase as income increases