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micro economics > elastcities > Flashcards

elastcities Flashcards

1
Q

inelastic demand

A

even if price increases or decreases demand remains the same /stable this includes necessity items and where there is limited substitutes

demand is not very responsive to changes in prices

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2
Q

elastic demand

A

-this is where quantity demanded of product all service is highly responsive to changes in prices if the price of the product increases the demand decreases and if the price decreases demand increases this is when there is many substitutes and the products are non essential

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3
Q

PED

A

price elasticity of demand measures the responsiveness of quantity demanded given a change in demand

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4
Q

formula PED

A

% change quantity demanded/ %change price

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5
Q

price elastic

A

> 1 greater than one-demand is price elastic, quantity demanded changes more than price

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6
Q

price inelastic

A

<1 smaller than one-demand price inelastic, the quantity demanded change is less than price.

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7
Q

demand perfectly price inelastic

A

0 demand perfectly price inelastic-regardless of the price changing quantity demanded won’t change

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8
Q

perfectly price elastic

A

(infinate) demand perfectly price elastic-in extreme examples if perfectly elastic any change in price would have no impact on the quantity demanded.

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9
Q

unitary elastic

A

1 demand is unitary elastic the value of PED is exactly 1 ignoring the minus for example a decrease in the price of a phone by 10% increases the demand by 10%

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10
Q

examples of:

Elastic demand

Inelastic demand

Unitary elasticity

Perfectly price inelastic

Perfectly price elastic

A

Luxury items

Food, medicine, utilities

Price increases by 10% and quantity demanded increases by 10%

Life saving medicines, addictive substances

Not essential but when price rises people still willing to pay

Clothes ,electronics price increases find alternatives

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11
Q

YED

A

measures the responsivness of quantity demanded given a change in income

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12
Q

formula

A

% change in quantity demanded/ % change in income

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13
Q

normal goods relation to income and demand

A

positive +, if income increases demand increases

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14
Q

inferior goods relation between income and demand

A
  • inverese relation,income increases demand decreases
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15
Q

normal luxury

A

bigger than 1 demand is income elastic, increase income increases demand but by alot more, didnt previously purchase

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16
Q

normal necessity

A

less than 1, demand is income inelastic, increase in income increases demand but not by as much as income increases by- might by slightly more - used to buy before

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17
Q

less than one - inferior goods

A

demand is income inelastic

18
Q

greater than one - inferior goods

A

demand is income elastic

19
Q

demand is 0

A

demand is perfectly priced ineastic

20
Q

XED

A

Cross elasticity of demand is the responsiveness of a change in demand of one good, X, to a change in price of another good, Y.

21
Q

formula XED

A

% change in quantity demanded of X/ % change price of Y

22
Q

complementry goods

A

Complementary goods have a negative XED. If one good becomes more expensive, the quantity demanded for both goods will fall.

23
Q

strongly related complemntary goods

A

strongly related complements: a small fall in the price of good X leads to a large increase in QD of Y, demand between goods is price elastic price one good changes, quantity demanded for others will change proportionally more. >1

24
Q

weakly related compliments

A

Weakly related complements: a large fall in the price of good X leads to only a small increase in QD of Y. <1
Demand between goods are price inealstic price one good changes quantity demanded for other change proportionally less.

25
Q

substituites

A

Substitutes can replace another good, so the XED is positive and the demand curve is upward sloping. If the price of one brand of TV increases, consumers might switch to another brand.

26
Q

strongly related substitutes

A

strongly related substitutes: a small increase in the price of good X leads to a large increase in QD of Y. >1 price elastic.

27
Q

weakly related substitutes

A

a large increase in the price of good X leads to a smaller increase in QD of Y.<1 ineastic price

28
Q

Unrelated goods

A

Unrelated goods have a XED equal to zero. For example, the price of a bus journey has no effect on the demand for tables.

29
Q

why are firms interested in the XED

A

Firms are interested in XED because it allows them to see how many competitors they have. Therefore, they are less likely to be affected by price changes by other firms, if they are selling complementary goods or substitutes.

30
Q

0- perfectly price inelastic (xed)

A

0- perfectly price inelastic demand between goods has no relationship

31
Q

price elasticity of supply definition

A

measures the responsivness of quantity supplied to a change in price, reflects the ability of producers to change their output following a change in demand

32
Q

what happens when supply id price elastic

A

producers can respond quickly and easily to changing demand without the need for a rise in market price

33
Q

formula PES

A

% change in quantitity supplied / % change in price

34
Q

elastic supply ……..

A

firms can increase supply quickly at little cost, PES more than 1

35
Q

explain elastic supply

A

a large change in demand from d1 to d2 where we are able to increase quantity from q1 to q2 with only a small change in price.

36
Q

situations where supply may be elastic

A
  • supplier has pleanty of spare capacity to increase output
    -high stock levels -immediately avaliable to meet rising demand
    -short production time phrame( mass production )
    -ease of factor subsitution is high, labour and capital are more mobile, transfereeable skills
37
Q

inelastic supply

A

an increase in supply will be expensive for firms and take a long time. PES is less than 1

38
Q

explain inelastic supply

A

limited increase in ouput from q1 to q2 when there is a big increase in demand from d1 to d2 and there is a signifiicant increase in market price rather than quantity supplied

39
Q

perfectly inelastic supply

A

pes=0, supply is fixed, no change in demand, it cannot be met easily

40
Q

perfectly elastic

A

pes= infinity, any quantity demanded can be met without changing price

micro economics (11 decks)

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