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Foundation Economics > Elasticity of Demand and Supply > Flashcards

Elasticity of Demand and Supply Flashcards

1
Q

Demand

A

The quantity of a good/service consumers are willing and able to buy of a given price in a given time period.

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2
Q

Law of Demand

A

There is an inverse relationship between price and quantity demanded. As price increases, Quantity of demand decreases and vice versa.

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3
Q

What is Supply?

A

The quantity of a good/service producers are willing and able to produce at a given price in a given time period.

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4
Q

Law of Supply

A

There is a direct relationship between price and quantity supplied. As price increases, Quantity of Supply increases and vice versa.

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5
Q

What is PED?

A

Measures the responsiveness of quantity demanded given a change in price.

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6
Q

Equation for PED?

A

%Change in quantity demanded / % change in price

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7
Q

Equation for change in?

A

Difference/ Original x 100

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8
Q

is PED always positive or negative?

A

always negative. The price elasticity of demand is ordinarily negative because quantity demanded falls when price rises, as described by the “law of demand”.

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9
Q

If PED is more than 1 what does it mean?

A

Demand is price elastic

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10
Q

If PED is less than 1 what does it mean?

A

demand is price inelastic

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11
Q

If PED is =0 what does it mean?

A

perfectly price inelastic

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12
Q

If PED is infinite what does it mean?

A

perfectly price elastic

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13
Q

If PED is 1 what does it mean?

A

demand is unit price elastic

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14
Q

What is price elastic supply ?

A

Measures the responsiveness of quantity supplied given a change in price.

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15
Q

equation for PES?

A

%change in quantity of supply/ %change in price

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16
Q

is PES always positive ?

A

yes because this is because the change in price and quantity are either both positive or both negative. If price goes up, quantity supplied goes up; if price goes down, quantity supplied goes down too.

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17
Q

What is Supply?

A

the quantity of a good/service producers are willing and able to produce at a given price in a given time period

18
Q

What is law of supply?

A

there is a direct relationship between price and quantity supplied. As price increases quantity of supply increases and vice versa.

19
Q

if PES is more than 1?

A

supply is price elastic

20
Q

if PES is less than 1?

A

supply is price inelastic

21
Q

if PES is equal to 0?

A

supply is perfectly price inelastic

22
Q

if PES is infinite ?

A

perfectly price elastic

23
Q

if PES is equal to 1?

A

supply is unit price elastic

24
Q

Cross elasticity of demand

A

measures the responsiveness of quantity demanded of a good/service given a change in price of another.

25
Q

equation for xed ?

A

%change in quantity demand of good A / % change in price b

26
Q

if xed is positive what does that mean?

A

it is a substitute - if price product A goes up , demand for the other product B will also go up

27
Q

if xed is negative what does that mean?

A

it is a compliment - if price product A goes up , demand for the other product B will go down.

28
Q

if XED is more than 1?

A

demand between the goods is price elastic ( strongly related)

29
Q

if XED is less than 1?

A

Demand between the goods is price inelastic (weakly related)

30
Q

if XED =0?

A

demand between the goods is perfectly price inelastic ( no relationship)

31
Q

what is yed? ( income of elasticity of demand)

A

measures the responsiveness of quantity demanded given a change in income.

32
Q

equation for yed?

A

%change in quantity demanded / % change in income

33
Q

if yed is positive it means?

A

if its is positive it is a normal good - as income goes up quantity goes up

34
Q

if yed is negative it means?

A

if its is negative it is a inferior good - as income goes up quantity goes down

35
Q

if yed is more than 1 ? (for normal goods)

A

demand is income elastic normal luxury

36
Q

if yed is less than 1 ? (for normal goods)

A

demand is income inelastic normal necessity

37
Q

if yed is more than 1 ? ( for inferior goods)

A

demand is income elastic

38
Q

if yed less than 1 ? ( for inferior goods)

A

demand is income inelastic

39
Q

if yed is equal to 0

A

demand is perfectly income inelastic

40
Q
A

Foundation Economics (5 decks)

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