Economics 2.5 Flashcards
YED PED (SL)
elasticity
a measure of the responsiveness of an economic variable to a change in another economic variable
PED
a measure of the responsiveness of the quantity demanded of a good/service to a change in its price
total revenue
the amount of revenue received by a firm from the sale of a particular quantity of output (P times Q)
perfectly elastic demand
occurs with a horizontal demand curve signifying that any amount can be bought at a particular price (PED infinite)
perfectly inelastic demand
change in price leads to no change in the quantity demanded (PED = 0)
unitary elastic demand
occurs when a change in the price of a good/service leads to an equal and opposite proportional change in the quantity demanded (PED = 1)
Price elastic demand
% change in Qd > % change in P
price inelastic demand
% change in Qd < % change in P
primary commodities
raw materials that are produced in the primary sector (eg. agricultural products, metals, minerals)
manufactured products
products/goods that have been produced by workers often working with capital goods
income elasticity of demand (YED)
the responsiveness of demand for a good/service to a change in income
luxury goods
goods aren’t considered essential by consumers –> PED > 1 or YED > 1
necessity
the degree to which a good is necessary or essential.
if the increase in demand for a necessity good is less than proportional to the rise in income then the necessity good is income elastic.
PED inelastic
normal goods
a good where the demand for it increases as income increases
inferior goods
lower quality goods for which higher quality substitutes exist; if incomes rise, the demand for these goods decrease (eg. canned foods)
