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Economics - Micro > Elasticity > Flashcards

Elasticity Flashcards

1
Q

What is elasticity?

A

It examines how responsive demand (or supply) is to a change in another variable. Eg. Price, Income

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2
Q

Price Elasticity of Demand (PED)

A

Measures the responsiveness of DEMAND to a change in PRICE

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3
Q

Price Elasticity of Supply (PES)

A

Measures responsiveness of SUPPLY to a change in PRICE

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4
Q

Cross Elasticity of Demand (XED)

A

Measures responsiveness of DEMAND of GOOD A to a change in PRICE of GOOD B

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5
Q

Income Elasticity of Demand (YED)

A

Measures responsiveness of DEMAND to a change in INCOME

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6
Q

Price Elasticity of Demand EQUATION

A
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7
Q

Inelastic Demand GRAPH

A
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8
Q

Characteristics of goods that have inelastic demand.

A
  • No subsitutes for the good. EG. Gold, Diamonds, Petrol, Sugar
  • Goods which are necessities
  • Addictive
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9
Q

Elastic Demand GRAPH

A
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10
Q

What is meant when Demand is Price Elastic

A

If a change in price causes a bigger % change in demand

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11
Q

When is Demand said to be Price Elastic?

A

If a change in price causes a bigger % change in demand

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12
Q

Cross Elasticity of Demand (XED)

A

XED = % change in Quantity Demanded / % change in price of other good.

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13
Q

Income Elasticity of Demand (YED)

A

YED = % change in Q.D / % change in income

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14
Q

Price Elasticity of Supply (PES)

A

PES = % change in Q.S / % change in Price

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15
Q

What would happen if the price for chocolate increased?

A

Demand would be PRICE INELASTIC because there are no close substitutes

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16
Q

What would happen if a particular brand of choclate increased its price??

A

Consumers would switch to another brand of chocolate, demand is more is more ELASTIC

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17
Q

Price Discrimination definition

A

charging a different price for different groups of people for the same good.

EG. Student discounts

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18
Q

In th short-term is demand price inelastic or elastic?

A

Inelastic - because people dont have time to look for alternatives

19
Q

In the long-term is demand price inelastic or elastic?

A

elastic - because people try harder to look for alternatives

20
Q

Cross Elasticity of Demand - What does it mean if the answer is POSITIVE??

A

The goods are substitutes

21
Q

Cross Elasticity of Demand - What does it mean if the number is NEGATIVE??

A

The goods are complements

22
Q

What does it mean, about the product if the value you get is LESS THAN 1%?

A

Product is ELASTIC

23
Q

What does it mean, about the product if the answer you get is GREATER THAN 1%?

A

The product is INELASTIC

24
Q

`What does it mean about the product, if the value you get is EQUAL TO 1?

A

The product is UNIT ELASTIC

25
Q

What does it mean about the product, if the number is EQUAL TO 0?

A

The product is PERFECTLY INELASTIC

26
Q

If there is a RISE in INCOME what will happen to the DEMAND of INFERIOR GOODS?

A

The demand will FALL/DECREASE

27
Q

If there is a RISE in INCOME what will happen to the DEMAND for a NORMAL GOOD?

A

The will be a SMALL RISE in demand

28
Q

If there is a RISE in INCOME what will happen to the DEMAND of a LUXURY GOOD?

A

There will be a BIGGER RISE in demand

29
Q

What factors determine ELASTICITY of SUPPLY?

A

Levels of spare capacity

Can the firm employ more factors of production

Time period – supply often inelastic in the short-term

30
Q

What is the Price Elasticity of Demand?

A
31
Q

What does Price Elasticity of Supply mean?

A
32
Q

Price Elasticity of Supply equation.

A
33
Q

What does Income Elasticity of Demand mean?

A
34
Q

Income Elasticity of Demand equation.

A

% change of Quantity Demanded / % change in Income

35
Q

What is a Recession?

A

Two consecutive times of negative economic growth

36
Q

Price Elasticity of Demand Formula.

A

% change in Quantity Demanded / % change in Price

37
Q

What kind of product is a product that had a change in Price of £5 - £6 and a Change in Quantity Demanded of 2500 - 1500? (How do you calculate this)?

A
  • Find the difference between £5 - £6 and 2500 - 1500
  • £1 and 1000
  • Divide by the original value and TIMES by 100
  • 1/5 x 100 = 20% - 1000/2500 x 100 = 40%
  • 20 % is the Change in Price
  • 40% is the Change in Quantity Demanded
  • Divide the % Change in Quantity Demanded by the % Change in Quantity Demanded

40%/20% = 2%

38
Q

What is the relationship if the value is between 0 and -1?

A

The relationship is INELASTIC

39
Q

What is the relationship if the value is between -1 and INFINITY?

A

Relationship is ELASTIC

40
Q

What is the Product if the value is less than >1%?

A
41
Q

What is the Product if the value is greater than <1%

A
42
Q

What is the Product if the value is = to 1?

A
43
Q

What is the Product if the value is = 0?

A

PERFECTLY INELASTIC

Economics - Micro (32 decks)

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