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Economic A Level > Elasticity > Flashcards

Elasticity Flashcards

1
Q

What is the equation for price elasticity of demand

A

Percentage change in quantity demanded/Percentage change in price

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2
Q

What is the equation for percentage change

A

Change / original x100

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3
Q

What does the sign say about the elasticity

A

It is almost always a negative sign as they have an inverse relationship

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4
Q

What number is perfectly inelastic

A

0

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5
Q

What range of numbers are inelastic

A

0 to 1

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6
Q

What is unitary elastic

A

1

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7
Q

What range of numbers are elastic

A

1 to infinite

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8
Q

What number id perfectly elastic

A

infinite`

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9
Q

Why is PED not the same thing as gradient

A

Elasticity varies along the length of most demand curves
They are more elastic as you shift leftwards

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10
Q

What does perfectly inelastic demand look like and mean

A

Straight line vertically
Quantity demanded is completely unchanged following the change in price

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11
Q

What does perfectly elastic demand look like and mean

A

Horizontal straight line
Quantity demanded changes by an infinite amount in the opposite direction

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12
Q

What does unitary elastic demand look like and mean

A

Rectangular hyperbola
Quantity demanded changes by the exact proportion as the price change and in the opposite direction

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13
Q

What should firms do if they have a inelastic demand

A

Increase prices to maximise revenue

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14
Q

What should firms do if they have elastic demand

A

Decrease prices to increase revenue

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15
Q

What ways can PED be measured

A

Change actual pries and observe the affect on demand
Look at secondary data e.g. prices charged by rival firms
Market research

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16
Q

What is income elasticity of demand

A

It is a measure of the sensitivity of the quantity demanded of a good or service following a change in consumer income

17
Q

What is the formula for income elasticity of demand`

A

Percentage change in quantity demanded/Percentage change in income

18
Q

What YED sign are normal goods

A

+
There is a positive relationship

19
Q

What YED sign are inferior goods

A

-

20
Q

What numbers is YED inelastic

A

0 to 1

21
Q

What numbers is YED elastic

A

1 to infinite

22
Q

What are the disadvantages to YED

A

That goods which are seen as necessities for some are luxuries for others
YED is hard to measure and is an extimate

22
Q

What do firms use YED for

A

To figure out how roughly how much they will sell and what they need to do

23
Q

What is the sign for a normal good for PED

A

negative

24
Q

What is Cross elasticity of demand

A

It is a measure of the sensitivity of consumer demand for one good following a change in the price of another good

25
Q

What is the formula for XED

A

% change in quantity demanded for good b/%change in price of good A

26
Q

What does the sign tells us about XED

A

Positive sign means the goods are substitutes
Negative sign means complements

27
Q

What numbers mean XED is weak

A

0 to 1

28
Q

What numbers mean XED is strong

A

1 to infinite

29
Q

What is XED used for

A

Firms in competitive markets can steal customers
Firms that sell complementary goods can increase their other goods sales

30
Q

What is price elasticity of supply (PES)

A

It is a measure of the sensitivity of the quantity supplied of a good/service following a change in its price

31
Q

What is the formula for PES

A

= Percentage change in quantity supplied / percentage change in price

32
Q

What does the sign say about PES

A

Positive = Normal good, Price increases and Quantity supplied increases
Negative = Backward bending supply

33
Q

What does the number say about PES

A

0 - perfectly inelastic
0 -> 1 Inelastic
1 Unitary elastic
1 -> Infinite Elastic
Infinite - Elastic

34
Q

What does a unitary elastic supply curve look like

A

Any supply curve that goes through the origin

35
Q

What determines the PES of a good

A

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

Economic A Level (22 decks)

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