Elasticity Flashcards
What is PED?
PED measures the responsiveness of demand to a change in price.
What is the formula for PED?
PED = % change in quantity demanded / % change in price
An inelastic good for PED means…..
…..quantity demanded is not significantly affected by a change in price.
An elastic good for PED means….
…..quantity demanded would be significantly affected by a change in price.
What is the numerical result for perfect inelasticity for PED
0
What is the numerical result for relative inelasticity for PED
0 to -0.99
What is the numerical result for unit elasticity for PED?
-1
What is the numerical result for relative elasticity for PED?
-1 to -∞
What is the numerical result for perfect elasticity for PED?
-∞
What are the determinants of PED?
HINTS
1. Habit Forming
2. Income% spent
3. Necessities
4. Time Frame
5. Substitutes
What is habit forming ?
If a certain product is addictive, the more inelastic demand for that product there would be.
What is income% spent?
The proportion of income % spent on a commodity, the greater the elasticity of demand for it and vice versa.
What is necessities?
If a certain product is a need, which means it is necessary for survival, then demand for it would most likely be inelastic.
What is timeframe?
If a certain product becomes more fashionable over a certain period of time, then demand would be inelastic as people would still buy the product anyway.
What is substitute?
If substitutes are available, the product’s demand tends to be elastic. If the price of the product increases, people would shift to its close substitutes which are at a lower price.
What is PES?
PES measures the responsiveness of supply to a change in price.
What is the formula for PES?
PES = % change in quantity supplied / % change in price bought for
An inelastic good for PES means….
….quantity supplied is not significantly affected by a change in price.
An elastic good for PES means….
….quantity supplied is significantly affected by a change in price.
What is the numerical result for perfect inelasticity for PES?
0
What is the numerical result for relative inelasticity for PES?
0 to 0.99
What is the numerical result for unit elasticity for PES?
1
What is the numerical result for relative elasticity for PES?
1 to ∞
What is the numerical result for perfect elasticity for PES?
∞
What are Barriers to entry?
This prevents newcomers from entering a market or industry and so limits competition.
What is spare capacity?
Spare capacity refers to how much extra room there is for a firm to increase its production. If there is more space, then supply would become inelastic as you can use that extra space to make more of the product.
What is stocks?
Stocks refer to where companies can keep their products. If a firm can keep its products, this means that it can respond to price changes- and so therefore, the price would be elastic. If stocks are not available, it becomes very difficult to respond to price changes, thereby making supply inelastic.
What is length of time to produce?
The length of time to produce refers to the duration of time it takes to make a good or service. If a product takes a long to time produce, this means that supply would be inelastic, and thus not receptive to price changes.
What is skills of labour?
Labour is a factor of production which refers to workers who are involved in the production process. How skilled that worker is relates to the difficulty that that job entails and the level of qualification required.
