Elasticity Flashcards
Elasticity of: Demand, Supply, income, Cross Price
Define Price elasticity of demand?
The responsiveness of the quantity demanded to a change in price
What’s the PED formula
PED= %^Qd/%^P
What does it mean if PED is above 1
It is price elastic
What does it mean if PED is below 1
It is price inelastic
What are the factors affecting PED?
Availability of substitutes Cost of switching supplier Breadth of definition Degree of necessity Time frame Brand loyalty % of income spent Habitual demand (routine)
What does it mean if PED is 1
It is unitary elastic
What is total revenue (TR)
The amount of money made
Demand X price
What is marginal revenue (MR)
The change in revenue at each price
Define cross price elasticity of demand (XED)
The responsiveness of demand for one good to a change in the price of another good
What’s the formula for XED
XED = %^QdA/%^PB
What is the XED if it is >1
Close substitute good
What is the XED if it is <1
Distant substitute good
What is the XED if it is
Close compliment good
What is the XED if it is >-1
Distant compliment good
Define Income elasticity of demand (YED)
The responsiveness of demand for a good to change in income
YED formula
YED = %^Qd/%^Y
What is YED is <0
It is an inferior good
What is YED if it is between 0 and 1
A normal necessity good
What is YED if it is above 1
It is a normal luxury good
Define price elasticity of supply (PES)
The responsiveness of supple to a change in the price
What is the formula for PES
PES = %^PES/%^P
What is PES if it is between 0 and 1
It is inelastic
What is PES if it is above 1
It is elastic
Is the curve horizontal or vertical for perfectly inelastic
Horizontal
Is the curve horizontal or vertical for perfectly elastic
Vertical
What factors affect PES (4)?
Time (short term vs long term)
CELL (substitution of factors of production)
Ability to stock the product
Spare capacity (potential fulfilled?)
