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Micro Economics > 4.1.3.2/4/6- PED, PES, XED, YED > Flashcards

4.1.3.2/4/6- PED, PES, XED, YED Flashcards

1
Q

Define elasticity

A

The measure of how much one variable changes in response to the change in another variable

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2
Q

Define PED

A

Price elasticity of demand - the measure of responsiveness of a change in demand for a good or service to a change in its price

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3
Q

Define PES

A

Price elasticity of supply - the responsiveness of the quantity supplied of a good or service to a change in its price

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4
Q

Define XED

A

Cross elasticity of demand - measures the responsiveness of demand for good A to a change in price of good b

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5
Q

Define YED

A

Income elasticity of demand - measures the responsiveness of quantity demanded of a good to a change in income

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6
Q

Formula for PED

A

% change Qd / % change P

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7
Q

Formula PES

A

% change Qs / % change P

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8
Q

Formula XED

A

% change Qd (good A) / % change P (good B)

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9
Q

Formula YED

A

% change Qd / % change Y

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10
Q

Describe Perfectly inelastic PED

A
  • PED value of 0
  • despite the change in price, quantity will never change
  • when price doubles, Total revenue will doubles
  • relationship between TR and change in price is directly proportional
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11
Q

Describe inelastic PED

A
  • absolute PED value of less than 1
  • quantity demanded is not very responsive to price changes
  • when price rises, TR will also rise
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12
Q

Describe a unitary elastic PED

A
  • PED value of exactly -1
  • the there is the same %change in quantity as % change in price
  • a change in price doesn’t affect the TR
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13
Q

Describe an elastic PED

A
  • absolute PED value of more than 1
  • price is very responsive to price changes
  • when price increases TR will decrease
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14
Q

Describe a perfectly elastic PED

A
  • PED value of infinity
  • demand is extremely responsive to changes in price
  • if price increases, demand will fall to 0
  • TR and change in quantity are directly proportional
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15
Q

What are the factors affecting PED

A

PLANTS
- proportion of income
- luxury or necessity good
- addictive
- number of uses
- time
- substitutes

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16
Q

How does proportion of income affect PED

A

the more expensive or higher percentage of total budget that a good takes up, the more elastic demand

17
Q

How does luxury or necessity affect PED

A
  • luxuries have a more elastic PED, whilst necessities have an in elastic PED
18
Q

How does addiction affect PED

A

Is a good is addictive, people need it to feel happy or stable therefore goods have an in elastic PED

19
Q

How does no of uses affect PED

A

Is an item has multiple uses, it is more helpful so will have a more inelastic PED

20
Q

How does time affect PED

A

Overtime, consumers are more likely to respond to price changes as they will find adequate substitutes meaning PED will become more elastic overtime

21
Q

How does substitutes affect PED

A

If a good has many substitutes it will have an elastic PED as there are alternatives that can be used

22
Q

What is the gradient of a demand cure with an elastic PED

A

Smaller gradient, shallower line

23
Q

What is the gradient of a demand cure with an inelastic PED

A

Larger gradient and steep slope

24
Q

Why is PES positive

A

An increase in price will incentivise firms to supply more and a decrease in price will incentivise firms to supply less

25
Q

Describe a perfectly inelastic PES

A
  • PES value of 0
  • supply is not responsive to any changes of price that may occur
26
Q

Describe an inelastic PES

A
  • PES value of less than 1
  • supply is less responsive to price changes
27
Q

Describe a unitary elastic PES

A
  • PES value of 1
  • there is an exactly equal % change of price to quantity supplied
28
Q

Describe an elastic PES

A
  • PES value of more than 1
  • supply is more responsive to price
29
Q

Describe a perfectly elastic PES

A
  • PES value of infinity
  • supply only occurs at one price, so at this price the quantity supplies is unlimited. There is no supply at any other price
30
Q

List the factors affective PES

A

SIFT
- spare production capacity
- inventory available
- factor substitution
- time

31
Q

How does spare production capacity affect PES

A

More spare production capacity enables firms to quickly increase their production, leading to a more elastic PES

32
Q

How does inventory available affect PES

A

If there is a larger inventory, firms will be able to produce more goods quickly, increasing the elasticity of PES

33
Q

How does factor substitution affect PES

A

If you can switch factors pf production quickly, a change in production can occur more quickly, meaning that PES is more elastic

34
Q

How does time affect PES

A

The more time there is, the more elastic PES a good will develop

35
Q

How are substitutes demonstrated by XED

A

A positive XED
- the relationship between the demand of good A and good B is inversely proportional

36
Q

How are compliment goods demonstrated by XED

A

Negative XED
- there is a directly proportional relationship between the demand for good A and the demand for god B

37
Q

How are unrelated goods demonstrated by XED

A
  • close to 0
    There is no relationship between the goods
38
Q

How does income elasticity of demand show a normal good

A
  • a positive YED
    As income increases, the demand for the good also increases
39
Q

How does YED demonstrate an inferior good

A
  • Negative YED
    As income increases, the demand for inferior goods deceases

Micro Economics (13 decks)

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