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Economics > Elasticities > Flashcards

Elasticities Flashcards

1
Q

Definition of PED

A

PED measures the responsiveness of quantity demanded given a change in price.

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2
Q

How to calculate PED?

A

PED= Percentage change in demand divided by percentage change in price (Q BEFORE YOU P)

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3
Q

Is PED always negative?

A

Yes because of the Law of Demand

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4
Q

Values of elasticities for PED

A 
>1 Demand is price elastic 
<1 Demand is price inelastic 
O= Demand is perfectly inelastic 
Infinite= Demand is perfectly elastic 
1= unit price elastic (every % increase in price is the same as the % decrease in demand)
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5
Q

Causes of different PEDs?

A 
SPLAT! 
Substitutes 
Percentage of Income 
Luxury 
Addictive/ habit forming 
Time Period
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6
Q

Define Cross Elasticity of Demand (XED)

A

XED measures the responsiveness of quantity demanded of a good/service given a change in price of another

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7
Q

Calculation for XED?

A

Q BEFORE YOU P

% change in demand over % change in price

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8
Q

How to calculate percentage difference?

A

% change= difference/ original x 100

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9
Q

Elasticities of XED

A

> 1 Demand between the goods is price elastic (strongly related)
<1 Demand between goods is price inelastic (weakly related)
0 Demand between the good is perfectly inelastic (no relationship)
Positive= Substitutes
Negative= Complements

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10
Q

Price Elasticity of Supply

A

PES measures the responsiveness of quantity supplied given a change in price

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11
Q

Elasticities of PES?

A 
>1 Demand is price elastic 
<1 Demand is price inelastic 
O= Demand is perfectly inelastic 
Infinite= Demand is perfectly elastic 
1= unit price elastic (every % increase in price is the same as the % decrease in demand)
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12
Q

Calculation for PES

A

PES= % change in quantity demanded/ % change in price (Q before you P)

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13
Q

Causes for different PESs?

A

PSSST
Production lag
Stocks
Spare capacity
Substitutability of Factors of production
Time (short run price is inelastic, long run its elastic)

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14
Q

Definition of YED

A

YED measures the responsiveness of quantity demanded given a change in income

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15
Q

Calculation of YED

A

YED= % change in quantity demanded/ % change in income (Q before you P)

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16
Q

Elasticities of YED?

A

+Normal good

-Inferior good

17
Q

Elasticities of Normal goods (YED)

A

> 1 demand is income elastic normal luxury

<1 demand is income elastic normal necessity

18
Q

Elasticities of inferior good (YED)

A

> 1 Demand is income elastic
<1 demand is income inelastic
There is no difference like with Normal Goods

Economics (2 decks)

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