Elasticity Flashcards
What is the equation for price elasticity of demand
Percentage change in quantity demanded/Percentage change in price
What is the equation for percentage change
Change / original x100
What does the sign say about the elasticity
It is almost always a negative sign as they have an inverse relationship
What number is perfectly inelastic
0
What range of numbers are inelastic
0 to 1
What is unitary elastic
1
What range of numbers are elastic
1 to infinite
What number id perfectly elastic
infinite`
Why is PED not the same thing as gradient
Elasticity varies along the length of most demand curves
They are more elastic as you shift leftwards
What does perfectly inelastic demand look like and mean
Straight line vertically
Quantity demanded is completely unchanged following the change in price
What does perfectly elastic demand look like and mean
Horizontal straight line
Quantity demanded changes by an infinite amount in the opposite direction
What does unitary elastic demand look like and mean
Rectangular hyperbola
Quantity demanded changes by the exact proportion as the price change and in the opposite direction
What should firms do if they have a inelastic demand
Increase prices to maximise revenue
What should firms do if they have elastic demand
Decrease prices to increase revenue
What ways can PED be measured
Change actual pries and observe the affect on demand
Look at secondary data e.g. prices charged by rival firms
Market research
What is income elasticity of demand
It is a measure of the sensitivity of the quantity demanded of a good or service following a change in consumer income
What is the formula for income elasticity of demand`
Percentage change in quantity demanded/Percentage change in income
What YED sign are normal goods
+
There is a positive relationship
What YED sign are inferior goods
-
What numbers is YED inelastic
0 to 1
What numbers is YED elastic
1 to infinite
What are the disadvantages to YED
That goods which are seen as necessities for some are luxuries for others
YED is hard to measure and is an extimate
What do firms use YED for
To figure out how roughly how much they will sell and what they need to do
What is the sign for a normal good for PED
negative
What is Cross elasticity of demand
It is a measure of the sensitivity of consumer demand for one good following a change in the price of another good
What is the formula for XED
% change in quantity demanded for good b/%change in price of good A
What does the sign tells us about XED
Positive sign means the goods are substitutes
Negative sign means complements
What numbers mean XED is weak
0 to 1
What numbers mean XED is strong
1 to infinite
What is XED used for
Firms in competitive markets can steal customers
Firms that sell complementary goods can increase their other goods sales
What is price elasticity of supply (PES)
It is a measure of the sensitivity of the quantity supplied of a good/service following a change in its price
What is the formula for PES
= Percentage change in quantity supplied / percentage change in price
What does the sign say about PES
Positive = Normal good, Price increases and Quantity supplied increases
Negative = Backward bending supply
What does the number say about PES
0 - perfectly inelastic
0 -> 1 Inelastic
1 Unitary elastic
1 -> Infinite Elastic
Infinite - Elastic
What does a unitary elastic supply curve look like
Any supply curve that goes through the origin
What determines the PES of a good
Time - More time means more price elastic
Stock Levels - More stock means a more price elastic curve
The nature of the product - Goods that can be made quick are more price elastic
Availability of labour and other factors of production
