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Economics 2 > elasticity > Flashcards

elasticity Flashcards

1
Q

What is the definition of PED (price elasticity of demand)

A

Measures how much the quantity demanded of a good or service changes in response to a change in its price

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2
Q

What is the formula of PED

A

%change in quantity demanded/ %change in price

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3
Q

If PED is > 1…?

A

Demand is elastic ( a large change in quantity demanded results from a small change in price)

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4
Q

If PED < 1…?

A

Demand is inelastic ( quantity demanded isn’t responsive to price changes)

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5
Q

I’d PED < 1…?

A

Demand is inelastic ( quantity demanded isn’t responsive to price changes)

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6
Q

If PED = 0…?

A

Demand is unitary elasticity ( percentage change in quantity is equal to percentage change in price)

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7
Q

What factors affect PED?

A
  1. availability of substances
  2. necessity vs luxery
  3. time period
  4. proportion of income spent on the good
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8
Q

what is the definition of PES ( price elasticity of supply)

A

Measured how much the quantity supplied of a good changed in response to a change in its price

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9
Q

What is the formula of PES

A

%change in quantity supplied/ %change in price

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10
Q

what are the factors effecting PES?

A

Time period, flexibility of production, availability of factors of production

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11
Q

What is the definition of YED?

A

Income elasticity of demand measures how much the quantity demanded of a good changes in response to a change in income

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12
Q

What is the formula for YED

A

%change in quantity demanded/ %change in income

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13
Q

If YED >0…?

A

The good is a normal good ( demanded increases as income rises)

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14
Q

If YED <0 …?

A

The good is an inferior good (demand decreases as income increases)

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15
Q

If YED > 1…?

A

The good is a luxury (demand increases more than proportionally with income)

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16
Q

If YED<1…?

A

The good is a necessity (demand increases less than proportionally with income)

17
Q

What’s the definition of cross-price elasticity of demand (XED)

A

Measures how much the quantity demanded of one good changes in response to a change in the price of another good

18
Q

What’s the formula for XED?

A

%change in quantity demanded of good A/ %change in price of good B

19
Q

If XED>0…?

A

The two goods are substitutes ( as the price of Good B increases, the demand for Good A increases)

20
Q

If XED<0…?

A

The two goods are compliments (as the price of Good B increases, the demand for Good A decreases

21
Q

If XED<0…?

A

The two goods are compliments (as the price of Good B increases, the demand for Good A decreases

Economics 2 (9 decks)

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