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Meechum > Elasticities > Flashcards

Elasticities Flashcards

1
Q

Elasticity def

A

a measure of the sensitivity of one variable to changes in another variable

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2
Q

PED def

A

Price elasticity of demand - a measure of the sensitivity of quantity demanded to a change in the price of a good or service

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3
Q

PED eqt

A

percentage change in quantity demanded / percentage change in price

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4
Q

percentage change eqt

A

N - O / O

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5
Q

remember PED

A

ignore ‘-‘ sign

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6
Q

if PED / S > 1

A

relatively price elastic - percentage change in quantity demanded > percentage change in price

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7
Q

if 0 < PED / S < 1

A

relatively price inelastic - percentage change in quantity demanded < percentage change in price

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8
Q

if PED / S= 1

A

unitary price elastic - percentage change in quantity demanded = percentage change in price

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9
Q

total revenue etq

A

total revenue = price x quantity

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10
Q

if PED / S= 0

A

perfectly inelastic - totally insensitive to price - price has no effect on demand

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11
Q

PED / S= 0 on graph

A

straight vertical line

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12
Q

0 < PED / S < 1 on graph

A

steep demand curve

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13
Q

PED / S > 1 on graph

A

shallow demand curve (more horizontal)

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14
Q

PED /S = 1 on graph

A

an actual demand CURVE / an straight 45 degree supply curve

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15
Q

if PED / S= infinite

A

perfectly price elastic - change in price = quantity demand will fall to 0

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16
Q

PED /S= infinity on graph

A

horizontal line

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17
Q

total revenue: price inelastic

A

price increases, TR increases

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18
Q

total revenue: price elastic

A

price increases, TR falls

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19
Q

influences on PED

A
  1. availability of substitutes
    more substitutes = easier to switch to cheaper alternative = price elastic
  2. necessity or luxury
    necessity = no substitutes = price inelastic
    luxury = not essential / needed = price elastic
  3. relative share of goods / service in overall expenditure
    cheap = not notice any small changes = price inelastic
    more expensive = more price elastic
  4. time period
    price elasticity increases over time
    b/c if price increase for a short period of time still price inelastic b/c habit and commitment to a certain pattern of consumption. If long run, consumers eventually find a cheaper alternative
20
Q

Profit eat

A

total revenue - total costs

21
Q

total revenue: unitary price elastic

A

price rises / falls = no change

22
Q

direct tax def

A

a tax levied directly on an individual or organisation e.g. income tax

23
Q

indirect tax def

A

a tax levied on expenditure on goods or services e.g. specific / ad valorem tax

24
Q

specific tax def

A

a tax charged as a fixed amount per unit of good

25
Q

ad valorem tax def

A

a tax charged as a percentage of the price of a good

26
Q

indirect tax diagram

A
  1. labels: in context / y = price, x = quantity / D, S, S+tax
  2. inward shift in supply (tax per unit)
  3. contraction in demand / new equilibrium
  4. draw horizontal line where q2 hits S - tax levied on consumer is between p1 and p2 - whole area = tax revenue
  5. if price inelastic = more tax levied on consumer
  6. change in consumer / producer surplus
27
Q

subsidy def

A

a grant given by the government to producers to encourage production of a good or service

28
Q

subsidy diagram

A
  1. labels: in context / y = price, x = quantity / D, S, S+subsidy
  2. outward shift in supply (subsidy per unit)
  3. extension in demand / new equilibrium
  4. draw horizontal line where Q2 hits S - benefit of subsidy to consumer is between p1 and p2 - whole area = total cost of subsidy to government
  5. if price inelastic = more benefit of subsidy to consumer
  6. change in consumer / producer surplus
29
Q

ad valorem diagram

A

tax per unit increases as quantity increase so is a slope

30
Q

PES def

A

Price elasticity of supply - a measure of the sensitivity of quantity supplied to a change in the price of a good or service

31
Q

PES eqt

A

percentage change in quantity supplied / percentage change in price

32
Q

influences on PES (4)

A
  1. Spare capacity - they cannot this into use
  2. ease and cost of factor substitution - how easy resources cab be substituted between goods / if transferred easily
  3. stock of infused products and components - if already have stock room = if sudden excess of demand can respond quickly and sell
  4. time - elasticity increases over time - more time for suppliers to provide / respond
33
Q

YED def

A

a measure of the sensitivity of quantity demanded to a change in consumer incomes

34
Q

YED eqt

A

percentage change in quantity demanded / percentage change in consumer incomes

35
Q

YED > 0 (pos)

A

normal - increase in income, increase in demand

36
Q

YED < 0 (neg)

A

inferior - increase in income, fall in demand

37
Q

YED > 1

A

luxury good - increase in income, increase in demand

38
Q

0 < YED < 1

A

necessity - will be bought where there is a change of income or not

39
Q

remember YED

A

not all consumers view the goods in the same way

40
Q

YED = 1

A

unitary income elastic

41
Q

XED def

A

a measure of the sensitivity of quantity demanded of a good/ service to a change in price of another good / service

42
Q

XED > 0 (pos)

A

increase in price of good Y = increase in quantity demanded of good X = substitutes

43
Q

XED < 0 (neg)

A

increase in price of good Y = decrease of quantity demanded of good X (complements)

44
Q

0 < XED < +/-1

A

weak substitutes / complements

45
Q

XED > -/+1

A

strong substitutes / complements

46
Q

XED = 0

A

X and Y are unrelated

47
Q

SOUP CAN

A

Substitutes
Positives
Complements
Negatives

Meechum (8 decks)

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