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economics a level > elasticities > Flashcards

elasticities Flashcards

1
Q

what does price elasticity of demand measure

A

the responsiveness to a change in price of demand

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2
Q

what does income elasticity of demand measure

A

the responsiveness of demand to a change in income

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3
Q

what cross elasticity of demand measure

A

the responsivensss of demand of good A when the price of substitute or complementery good B changes

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4
Q

what is the formula for price elasticity of demand

A

%change in Qd/
%change in P

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5
Q

what is the formula for income elasticity of demand

A

%change in Qd/
%change in Y

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6
Q

what is the formula for cross elasticity of demand

A

%change in Qd of good A/
%change in P in good B

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7
Q

when is demand price inelastic

A

when PED < 1

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8
Q

when is demand price elastic

A

when PED > 1

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9
Q

when is demand of unitary price elasticity

A

when PED = 1

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10
Q

when is demand perfectly elastic

A

when PED = infinity

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11
Q

when is demand perfectly inelastic

A

when PED = 0

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12
Q

what does elastic demand look like

A

a small change in price causes a large change in the quantity demanded

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13
Q

what does inelastic demand look like

A

a change in price doesn’t change the quantity demanded much

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14
Q

how does the availability of substitutes affect the PED

A

the more substitutes there are, the higher price elasticity will be

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15
Q

how does the share of a person’s budget affect the PED

A

if the cost of the product takes up a large share of a person’s disposable income, its price elasticity will be higher

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16
Q

how does how addictive a product is affect the PED

A

the more addictive a product is, the lower the price elasticity

17
Q

what type of demand occurs in complementary goods

A

joint demand

18
Q

what type of demand occurs in substitute goods

A

competing demand

19
Q

describe the relationships between the quantity demanded and the price in joint demand (cross elasticity of demand)

A

-as the QD of good A increases, the QD of good B also increases because they have joint demand
-as the price of good A increases then the QD demanded of good B decreases

20
Q

is the cross elasticity of demand for complementary goods positive or negative

A

the cross elasticity of demand for complementary goods is always negative because the demand for one good decreases when the price for the complementary good increases

21
Q

describe the relationships between the quantity demanded and the price in competing demand (cross elasticity of demand)

A

-as the QD of good A increases, the QD of good B decreases because they are in competing demand
-as the price of good A increases the QD of good B also increases

22
Q

is the cross elasticity of demand for substitute goods positive or negative

A

the cross elasticity of demand for substitute goods is always positive because the demand for one good increases when the price for the substitute good increases.

23
Q

what is the relation between supply and price on the supply curve

A

supply is positively related to price

24
Q

why is there a positive relation between supply and price

A

supply goes up as the price goes up because firms are assumed to be profit maximisers - they will supply more if a higher price can be achieved

25
Q

what leads to movement along the supply curve

A

changes in price lead to movement along the supply curve

26
Q

what are factors (other than price) that cause shifts in the supply curve

A

-costs of production (wages, materials, energy, borrowing costs)
-availability of technology
-taxes
-subsidies or grants given by the government
-weather (farming)
-geopolitics

27
Q

what would happen to the supply curve if wages increased

A

shift left

28
Q

what would happen to the supply curve if there was an improvement in technology

A

shift right

29
Q

what would happen to the supply curve if raw material costs increased

A

shift left

30
Q

what would happen to the supply curve if government gives a grant

A

shift right

31
Q

what would happen to the supply curve if there were taxes

A

shift left

32
Q

what effect do specific taxes have on the supply curve

A

SHIFT left

33
Q

what effect do ad valorem taxes have on the supply curve

A

increase in gradient / steeper line

34
Q

when is the price elasticy of supply elastic

A

when the good is easily accessible and doesn’t take a long time to produce

economics a level (5 decks)

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