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Economics Unit 1 > Elasticity > Flashcards

Elasticity Flashcards

1
Q

What is price elasticity? Equation?

A

The responsiveness of demand to a change in the price level

% change in Q.D/ & change in price

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2
Q

If PED is above 1, is it elastic or inelastic?

A

Elastic

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3
Q

If PED is below 1, is it elastic or inelastic?

A

Inelastic

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4
Q

If PED is 0?

A

Perfectly inelastic

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5
Q

If PED is infinity?

A

Perfectly elastic

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6
Q

If PED is 1?

A

Unitary elastic

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7
Q

What is low price elasticity?

A

Inelastic

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8
Q

What is high price elasticity?

A

Elastic

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9
Q

What factors determine PED? (2)

A

Price of substitutes

Time

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10
Q

If there are a lot of substitutes, is PED elastic or inelastic?

A

Elastic

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11
Q

What is the incidence of tax?

A

The proportion of tax that is passed on to the consumer

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12
Q

If PED is elastic, is the incidence of tax high or low?

A

Low

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13
Q

If PED is elastic, is the total revenue high or low?

A

Low

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14
Q

If a tax is imposed on a price elastic product, what would happen to employment? Why?

A

Employment would fall, due to the big fall in quantity

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15
Q

What is income elasticity of demand? Equation?

A

The proportion to which demand changes when there is a change in income
% change in quantity/ % change in income

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16
Q

What is a normal good?

A

Goods or services that will see an increase in demand when income rises

17
Q

What is an inferior good?

A

Goods or services that will see a decrease in demand when income rises

18
Q

If YED is positive, is the good normal or inferior?

A

Normal

19
Q

If YED is negative, is the good normal or inferior?

A

Inferior

20
Q

What is cross price elasticity of demand? Equation?

A

The proportion to which demand of one product changes when there is a change in the price of another product
% change in quantity of good a/ % change in price of good b

21
Q

What is a substitute?

A

Goods that can be used as alternatives to another good

22
Q

What is a complement?

A

Goods that are consumed with another good

23
Q

If XED is positive, is it a substitute or a complement?

A

Substitute

24
Q

If XED is negative, is it a substitute or a complement?

A

Complement

25
Q

What is price elasticity of supply? Equation?

A

The responsiveness of supply to a change in price

% change in supply/ % change in price

26
Q

What is a commodity?

A

A good that is traded, but usually refers to raw materials

27
Q

What factors affect the price elasticity of supply? (3)

A

Time
Availability of stock
Availability of spare capacity

Economics Unit 1 (12 decks)

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