Elasticity Flashcards

1
Q

Define elasticity.

A

The responsiveness of the quantity demanded or supplied to changes in price.

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2
Q

Draw a graph of an elastic and inelastic demand curve.

A

Green - inelastic
Pink - elastic

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3
Q

3 factors

What determines elasticity?

A
  1. The number and closeness of substitutes.
  2. The proportion of income spent on the good
  3. The time period
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4
Q

What is the equation for price elasticity?

A
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5
Q

When price elasticity is greater than |1|, the demand is…

A

Elastic

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6
Q

When price elasticity is less than |1|, the demand is…

A

Inelastic

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7
Q

Describe unit elasticity

A

When price elasticity is equal to 1. The quantity demanded and the price change by the same proportion.

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8
Q

Describe how elasticity affects consumer expenditure after a price rise.

A

If demand is elastic, consumer expenditure will decrease because a rise in price has a greater impact on demand, so less individuals will buy the product.

Vice versa if inelastic

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9
Q

Describe income elasticity.

A

The extent to which demand of a good changes in response to a change in income.

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10
Q

Why might a good be income inelastic?

A

If the good is an essential or necessity, its demand will not be affected much by income changing.

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