Elasticity

Question 1

What is elasticity ?

Answer 1

The responsiveness of a particular change to a good

Question 2

What does inelastic mean ?

Answer 2

This is less than 1

It means the good is unresponsive to changes

Question 3

What does elastic mean ?

Answer 3

This is more than 1

This means it is responsive to a change

Question 4

What is the equation for price elasticity of demand ?

Answer 4

Ped = (change in quantity divided average quantity)
divided by 
(change in price divided average price)

Question 5

What does price elastic mean ?

Answer 5

This means that as the price changes slightly, there is a large change in the demand

Question 6

What are perfectly inelastic goods ?

Answer 6

These are goods usually needed for everyday life e.g. petrol , oil

Question 7

What are perfectly elastic goods ?

Answer 7

These are normally luxury goods e.g. yachts

Question 8

What determines the price elasticity of demand ?

Answer 8

1. The proportion of income spent on a good
2. Time (might take time to update the demand / recognise change)
3. The availability of substitutes

Question 9

What is the price elasticity of supply ?

Answer 9

The ability of a business to respond to price changes in a given period of time

Question 10

How to determine the price elasticity of supply ?

Answer 10

1. Time - supply doesnt respond instantly

2. Factor inputes - factors required to produce the good

Question 11

What does asymmetric information mean ?

Answer 11

When one side knows more than the other e.g. dentist

Question 12

Examples of factor intensities ?

Answer 12

1. Labour intensive = shoe production

2. capital intensive = chemical manufacture

Question 13

Advantages of the firm ?

Answer 13

1. savings on transaction costs - undertaking business
2. The capacity to extend the division of labvour
3. the potential to innovate

Question 14

What is the valuation ratio =

Answer 14

The market valuation of the firm, expressed by :
Price of its shares divided by
the book value of assets

Question 15

What does economies of scale mean?

Answer 15

When firms use their existing infrastructure to lever themselves into new markets

Question 16

What is the concept ceteris paribus ?

Answer 16

This is a common assumption in economics that states that other things remaining the same
The purpose is to allow us to examine the influence of one factor at a time on something

Question 17

What are movements along a demand curve called ?

Answer 17

Contractions or extensions in the quantity demanded

Question 18

What is a normal good ?

Answer 18

A good that demand increases for as income increases

Question 19

What is a complement ?

Answer 19

A good that is used with another good

Question 20

What are factor inputs ?

Answer 20

Goods or services used in the process of production

Question 21

What is a clear market ?

Answer 21

One which the wuantity demanded equals the quantity supplied

Question 22

What does equilibrium price mean ?

Answer 22

This is one from which there is no tendency to change

Question 23

What does excess supply mean ?

Answer 23

This occurs when the quantity supplied exceeds the quantity demanded at some fiven price

Question 24

What is the single market programme ?

Answer 24

This is a concept applied across the EU where there is a unified market in goods, services, capital and labour

Question 25

What does price transparency mean ?

Answer 25

This refers to how easily consumers in one country can understand prices in another country

Question 26

Why do firms need to know about the price elasticity of demand ?

Answer 26

1. It’s essential to understand consumer reactions to the pricing structures they set in particular markets
2. Essential to manage excess supply etc.

Question 27

What is international division of labour ?

Answer 27

This concept refers tp the specialisation in production which occurs in some nations

Question 28

What is rational behaviour ?

Answer 28

This type of behaviour implies that economic agents act in their own best interests