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Economics - A Level > Elasticity > Flashcards

Elasticity Flashcards

1
Q

What is elasticity?

A

A measure of the sensitivity of one variable to changes in another variable.

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2
Q

PED Calculation

A

PED = %ΔQd/%ΔP

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3
Q

PED’S Will always have

A

a negative coefficient

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4
Q

PED’s will always be a

A

estimate

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5
Q

Why knowledge of PED is important to firms?

A

Firms total revenue calculation. P x Qd. Price falls - Qd rises Price rise - Qd falls

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6
Q

Demand relatively price elastic meaning

A

increase in price - rise in TR fall in price - fall in TR

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7
Q

Determinants of PED

A

S - Substitutes P - price of a good L - extent luxury/necessity good A - addictiveness T - time short term - more price inelastic long term - price elastic

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8
Q

What type of demand elasticity is this curve?

A

relatively elastic demand >1

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9
Q

What type of demand elasticity curve is this?

A

Relatively inelastic demand <1

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10
Q

What type of elasticity of demand is this curve?

A

Perfectly inelastic

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11
Q

What is this demand elasticity curve?

A

Perfectly inelastic

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12
Q

What type of elasticity of demand is this?

A

Unitary elastic demand

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13
Q

What is YED?

A

A measure of the sensitivity of demand to a change in consumer incomes.

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14
Q

YED Calculation

A

YED = %ΔQd / %ΔY

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15
Q

YED - Normal necessity goods

A

Positive coefficient less than 1.

As income increases there is a proportionately smaller increase in quantity demanded.

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16
Q

Normal goods - luxuries and YED

A

Positive coefficient greater than 1.

As income increases proportionately greater increase in quantity demanded.

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17
Q

YED + Inferior goods

A

Negative coefficient

As income rises, there will be a decrease in quantity demanded.

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18
Q

Evaluation YED

A
  • YED calculations are based on historical data
  • YED calculations are estimates
  • Consumers different preferences. Varied perception on good classification.
  • Ceteris Paribus
19
Q

How to distinguish between inelastic and elastic YED

A

Inelastic - ^^/vv

Elastic - ^v

20
Q

XED calculation

A

XED = %ΔQd Good A /%ΔP Good B

21
Q

XED Coefficients classification

A

Minus means that the goods are complements

Plus means that the goods are substitutes

Higher = stronger.

22
Q

If PED >1

P = increase

A

demand is relatively price elastic.

Therefore, an increase in price leads to a decrease in business revenue.

23
Q

If PED <1

P = increase

A

demand is relatively price inelastic.

Therefore, a decrease in price leads to an increase in business revenue.

24
Q

if PED >1

P - decrease

A

demand is relatively price elastic.

Therefore, a decrease in price leads to an increase in business revenue.

25
Q

If PED <1

P = decrease

A

demand is relatively price inelastic.

Therefore, a decrease in price leads to a decrease in business revenue.

26
Q

INELASTIC ELASTICITY PROPERTIES

PERFECTLY ELASTIC

A

infinity

%Δ Qd infinite

27
Q

INELASTIC ELASTICITY PROPERTIES

Relatively elastic

A

Greater than -1.

%ΔQd greater than %ΔP

28
Q

INELASTIC ELASTICITY PROPERTIES

UNIT ELASTICITY

A

-1

%ΔQd = %ΔP

29
Q

INELASTIC ELASTICITY PROPERTIES

RELATIVELY INELASTIC

A

Less than -1

%ΔQd/%ΔP

30
Q

INELASTIC ELASTICITY PROPERTIES

PERFECTLY INELASTIC

A

0

NO PERCENTAGE CHANGE

31
Q

What type of elasticity of supply curve is this?

A

Inelastic supply

32
Q

What type of elasticity of supply is this?

A

Relatively elastic supply

33
Q

What type of elasticity of supply is this?

A

Price relatively inelastic

34
Q

What type of supply elasticity curve is this?

A

Perfectly elastic

35
Q

What type of supply elasticity curve is this?

A

Unitary elastic

36
Q

XED DEFINE

A

a measure of the sensitivity of-of quantity demanded of a good to a change in the price of another good.

37
Q

PES define

A

Measures the responsiveness of quantity supplied of a good to a change in price of that good.

38
Q

PES CALCULATION

A

PES = %ΔQs / %ΔP

39
Q

If PES = 1 PES =

A

UNITARY ELASTIC

40
Q

IF PES = >1, PES =

A

PRICE ELASTIC SUPPLY

41
Q

IF PES = <1, PES=

A

PRICE INELASTIC SUPPLY

42
Q

Determinants of PES

A
  • Extent of current, space capacity in the firm/market.
  • The wase with which firms can build/reduce stocks of goods.
  • For an individual firm - availability of substitutes in supply.
  • Time
43
Q
A

Economics - A Level (26 decks)

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