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Analyzing Markets > Elasticity: Measuring Responsiveness > Flashcards

Elasticity: Measuring Responsiveness Flashcards

1
Q

What is PED?

A

The proportionate change in the quantity demanded for a particular good/or service in response to a change in price. %change in qd/ %change in price

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2
Q

Formula for calculating PED

A

%QD /QP (New - old/ (new+old/2)

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3
Q

What is absolute value?

A

Focuses on the magnitude of the PED

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4
Q

Price elastic, inelastic signs

A

ped >1, ped<1

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5
Q

What is a perfectly inelastic curve?

A

The qd is unchanged for price. PED = 0

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6
Q

What is a perfectly elastic curve?

A

The qd drops to 0, when price changes . Ped = sideways 8

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7
Q

List 5 determinants of PED

A 
Substitutes 
Necessities 
Time
Habitual/Addictiveness
%of total expenditure
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8
Q

What happens to revenue, when demand for a good/or service is price elastic? ( increase/and decrease price)

A

Loss, Gain

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9
Q

What happens to revenue, when demand for a good/or service is price inelastic? ( increase/and decrease price)

A

Gain, Loss

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10
Q

What is cross price elasticity of demand?

A

The proportionate change in the quantity demanded of good/or service A in response to change in price of good/or service B.

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11
Q

What are substitutes?

A

Equal satisfaction - XED > 0 - positive

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12
Q

What are compliments?

A

Total satisfaction - XED < 0 - negative

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13
Q

What is income elasticity of demand?

A

The proportionate change in quantity demanded in response to a change in income

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14
Q

What are normal goods?

A

YED > 1 positive

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15
Q

What are inferior goods?

A

YED <1 negative

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16
Q

What is PES?

A

The proportionate change in the quantity supplied for a particular good/or service in response to a change in price.

17
Q

What are the 5 determinants for PES

A 
Storing inventories
When inputs are easily available
firms with extra capacity
Barriers to entry
Time

Analyzing Markets (4 decks)

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