Elasticity Flashcards
Elastic demand graph
Shallow gradient
Price elasticity of demand
The responsiveness of demand to a price change
Inelastic demand graph
Steep gradient
Inelastic demand numbers
-1 to 0
Elastic demand numbers
Less than -1
Perfectly elastic products occur when
Goods are identical so a small change in price would have an infinite change in demand.
Perfectly inelastic is when
Quantity never changes, it will always be bought
Determinants of elasticity
Substitutes Proportion of income - how expensive Luxury - do without Addiction Time - an idiot in a hurry
Substitute closeness
How similar a substitute is
Substitute availability
How available are other substitutes
Improve revenue on inelastic products
Raise prices
Improve revenue on elastic products
Lower prices
Inferior goods are related to income
Inversely
Normal goods are related to income
Positively
Inferior numbers
Less than 0
Normal numbers
Greater than 0
Complements cross price elasticity
Negative
Negatively related
Substitutes cross price elasticity
Positive
Positively related
Inelastic supply numbers
0 to 1
Elastic supply numbers
More than 1
Factors that effect elasticity of supply
Stocks availability - can it be stored
Availability of production factors
Time - more time more elastic
