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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
What does it mean about the product, if the number is EQUAL TO 0?
The product is PERFECTLY INELASTIC
26
If there is a RISE in INCOME what will happen to the DEMAND of INFERIOR GOODS?
The demand will FALL/DECREASE
27
If there is a RISE in INCOME what will happen to the DEMAND for a NORMAL GOOD?
The will be a SMALL RISE in demand
28
If there is a RISE in INCOME what will happen to the DEMAND of a LUXURY GOOD?
There will be a BIGGER RISE in demand
29
What factors determine ELASTICITY of SUPPLY?
Levels of spare capacity Can the firm employ more factors of production Time period – supply often inelastic in the short-term
30
What is the Price Elasticity of Demand?
31
What does Price Elasticity of Supply mean?
32
Price Elasticity of Supply equation.
33
What does Income Elasticity of Demand mean?
34
Income Elasticity of Demand equation.
% change of Quantity Demanded / % change in Income
35
What is a Recession?
Two consecutive times of negative economic growth
36
Price Elasticity of Demand Formula.
% change in Quantity Demanded / % change in Price
37
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)?
- 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
What is the relationship if the value is between 0 and -1?
The relationship is INELASTIC
39
What is the relationship if the value is between -1 and INFINITY?
Relationship is ELASTIC
40
What is the Product if the value is less than \>1%?
41
What is the Product if the value is greater than \<1%
42
What is the Product if the value is = to 1?
43
What is the Product if the value is = 0?
PERFECTLY INELASTIC

Economics - Micro (32 decks)

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