Commerce - Elasticity Flashcards
What is PED?
measures how much the quantity demanded of a good changes in response to a change in price
What is PES?
measures how much supply changes when price changes
What is the formula for PES and PED
formula = N - O/O x 100
change in quantity supplied / demanded over change in price
How do you know from the result of the formula weather its elastic or inelastic?
If its less then 1 - inelastic
More then 1 - elastic
1 - unitary
0 - perfectly inelastic
infinity - perfectly elastic
What is elastic demand?
Big change in quantity with small price change.
What are some features of elastic goods?
Many substitutes, luxury items, more time to adjust
What is inelastic demand?
Small change in quantity with price change.
What are some features of inelastic goods?
few substitutes, necessities, little time to adjust
What does a perfectly inelastic and elastic demand graph look like?
Elastic: Flatter, more horizontal.
Inelastic: Steeper, more vertical.
What happens to revenue if price increase for inelastic and elastic goods?
Inelastic - Revenue goes up
Elastic - revenue goes down
What factors can affect PES?
Extra stock, more time, more factory space
How do decision makers use PED?
PED helps decide pricing strategies by showing how demand changes with price.
How do decision makers use PES?
PES measures how much the quantity supplied changes when the price changes.
What is revenue the same as and how do you caculate it?
consumer spending and price x quantity
