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Economics > Elasticities > Flashcards

Elasticities Flashcards

1
Q

What does PED stand for

A

Price Elasticity of Demand

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2
Q

What is the calculation for PED

A

% change in quantity demanded / % change in price

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3
Q

What is the formula for % change

A

((New - original) / original) x 100

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4
Q

What is the law of demand

A

The law of demand states that as the price of a good or service falls the quantity demanded increases assuming all other possible determinants of demand are held constant - ceteris paribus

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5
Q

What is demand

A

The quantity of a good that consumers are willing and able to buy at given prices in a particular time period

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6
Q

What is effective demand

A

Consumers desire to buy a good backed up by the ability to pay

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7
Q

Name some conditions of demand

A

Real disposable incomes, tastes and preferences, population, price of substitutes, price of complementary products, interest rates, advertising and marketing

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8
Q

What is PED = 0

A

Demand is perfectly inelastic, demand doesn’t change when price does

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9
Q

What is the elasticity if PED is between 0 and 1

A

Demand is inelastic (% change in demand is smaller than the % change in price)

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10
Q

What is elasticity if PED = 1

A

(% change in demand is the same as % change in price) demand is unit elastic leaves total spending equal at each price level.

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11
Q

What is elasticity if PED >1

A

Then demand represents a more than proportional to a change in price so demand is elastic

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12
Q

What does a perfectly inelastic demand curve imply

A

Rare case that implies consumers are willing to pay any price for the product if supply falls equilibrium market price can rise without any contraction

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13
Q

Firm a sells 500 units a week at £8 each and puts its price up to £9 sales the fall to 470 units
Calculate the PED
State whether it is price elastic or price inelastic

A

PED = 0.48
Price inelastic

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14
Q

What does fiscal mean

A

Talking about a government revenue mainly taxes

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15
Q

What is YED

A

Income Elasticity of Demand

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16
Q

What is YED

A

YED is how responsive the demand for a product is to a change in real income

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17
Q

What is the formula for calculating YED

A

% change in quantity / % change in real income

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18
Q

What is a normal good

A

YED is positive

19
Q

What is a luxury good

A

YED > +1

20
Q

What is a necessity

A

YED is >0 and <+1

21
Q

What is an inferior product

A

Have a negative YED they are counter cyclical goods

22
Q

What is a normal necessity

A

They have a low but positive income elasticity

23
Q

What is a normal luxury

A

A normal luxury has a high and positive income elasticity

24
Q

What is XED

A

Cross price elasticity of demand

25
Q

What is XED

A

Measures responsiveness of demand for good x following a change in the price of a related good y

26
Q

What is a substitute

A

Substitutes are products in competitive demand with substitutes an increase in the price of one will lead to an increase in demand for a rival product the value of XED for two substitutes is always positive

27
Q

What is a complimentary product

A

Complimentary products are in joint demand a fall in the price of one product causes an increase in demand for the complimentary product the value of XED of two complimentary products is always negative

28
Q

What is the formula for XED

A

% change in quantity demanded of good x / % change in price of good y

29
Q

What is a close substitiute

A

Small rise in price of x causes large rise in demand for y

30
Q

What is a weak substitute

A

Large rise in price of x leads to small increase in demand of y

31
Q

What is a close compliment

A

A small fall in price of y causes a large rise in demand for x

32
Q

What is a weak compliment

A

A large drop in price of x causes only a small rise in demand for y

33
Q

What is XED = 0

A

The price of good doesn’t affect the demand for another good

34
Q

What is market supply

A

The quantity of a good or service that all firms plan to sell at a given price in a given period of time

35
Q

What is the law of supply

A

The law of supply states that a goods price rises more then supply

36
Q

What is PES

A

Price Elasticity of Supply

37
Q

What is PES

A

PES measures the relationship between change in quantity supplied and change in price

38
Q

What is Elastic supply

A

Producers can increase their output without a rise in cost or a time delay

39
Q

What is inelastic supply

A

Where firms find it hard to change their production in a given time period

40
Q

When PES > 1

A

Supply is price elastic

41
Q

When PES < 1

A

Supply is price inelastic

42
Q

When PES = 0

A

Supply is perfectly inelastic

43
Q

When PES = infinity

A

Supply is perfectly elastic following a change in demand

44
Q

What factors determine PES

A

Length of the production period
Availability of spare capacity
Ease of accumulating stocks
The ease of switching between methods of production
Number of firms in the market and ease of entering
Time

Economics (6 decks)

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