Economics 1 Flashcards
What is price elasticity of demand
Refers to how much demand changes when there is a change in price
If price elasticity of demand is greater than 1 the demand for the good is what?
Price elastic
Is the price elasticity of demand for a good is less than 1 the demand for the good is what?
Price Inelastic
A price elasticity of demand of 0 means what
Perfectly Inelastic
A price elasticity of demand of 1 means what
Unitary price elasticity of demand
What factors affect price elasticity of demand
The availability of substitutes
Time- if need immediately by customers
Whether the product is a luxury or a necessity
The proportion of income spent
What is income elasticity of demand
This measures the responsiveness of demand to changes in income
If the demand for a good rises when income rises it is know as what type of good
Normal good
What is an inferior good
Goods or services that will see demand fall as income rises
A positive income elasticity of demand shows the good is what?
A normal good
What are substitutes
Goods that can be used as alternatives to another good, for example bus and rail services
Is cross price elasticity of demand is negative the good is what
Complimentary goods
If cross price elasticity of demand is positive the goods are what
Substitutes
What is a commodity
A good that is traded but usually refers to raw materials or semi manufactured goods that are traded in bulk
What factors effect the price elasticity of supply
Time- it may take time to produce extra output so in the short run cannot meet the increase in demand eg. Vintage wines
The supply of raw materials - often Inelastic as new mines ect. May be needed
The availability of stock or stock piling
The availability of spare capacity
The easy of ease of switching between alternative production
