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Econs > elasticity of supply & demand > Flashcards

elasticity of supply & demand Flashcards

1
Q

What happens when 0<PES<1 and PES>1?

A

the bigger the PES, the more producers respond to the price.

when 0 < PES < 1, price is inelastic so producers not willing to enter the market

When PES > 1, price is elastic so producers are willing and easier to enter the market

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2
Q

Equation for PES

A

% change of quantity supplied / change of price

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3
Q

|PES| =1

A

Unnitary Price Elastic Supply : when change in price of the good results in a proportionate change in quantity supplied of the good in same direction, ceteris paribus

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4
Q

PES = 0

A

Perfectly Price Inelastic Supply : a given change in the price of the good itself produces no change in the quantity supplied, ceteris paribus. totally unresponsive when price changes (vertical line)

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5
Q

PES| -> infinity

A

Perfectly Price Elastic Supplied: a given change in price of good leads to an infinitely large change in quantity supplied, ceteris paribus. totally responsive when price changes (horizontal line)

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6
Q

[PES] Determinants: Mobility of factors of production

A

(ease = elastic)
geographical mobility - ease with moving between physical locations
occupational mobility - ease when moving between different industries (inelastic when job require specialized/ high skills)

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7
Q

[PES] Determinants: Existence of spare capacity

A

(greater = elastic)
means when not fully utilised, firms can increase production

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8
Q

[PES] Determinants: Availability of stock

A

(larger means able to respond better to price changes = elastic)
cuz when they don’t have the inputs, it is difficult to respond to an increase in quantity demanded by increasing the supply of good

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9
Q

[PES] Determinants:Time period

A

less = inelastic
cuz takes time to obtain more inputs. New firms also need time to enter the market.

more = elastic
cuz able to obtain more inputs and only when they are assured that the price increase is not a temporary phenomenon

eg. more time to flow more resources into an industry through expansion of existing firms / source for inputs

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10
Q

[PES] Determinants:Length and complexity of the production process

A

simple = elastic
cuz more able to adjust production levels according to the change in prices.

complicated = inelastic
cuz complex production process takes a long time so less able to adjust production levels according to the change in prices

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11
Q

What happens when 0<PED<1 and PED>1?

A

the bigger the PED, the more ppl respond to the price.

when 0 < PED < 1, ppl are insensitive to price change (price inelastic demand).

When PED > 1, price is elastic so ppl are sensitive to the price change.

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12
Q

Why PES +ve sign?

A

Law of supply states that quantity supplied is direct related to its price.

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13
Q

Why PED -ve sign?

A

Law of demand states that quantity demanded is inversely related to its price.

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14
Q

Equation for PED

A

% change of quantity demanded / change of price

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15
Q

|PED| =1

A

Unnitary Price Elastic Demand

when change in price of the good results in a proportionate change in quantity demanded of the good in opp direction, ceteris paribus

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16
Q

PED = 0

A

Perfectly Price Inelastic Demand

change in the price of the good itself produces no change in the quantity demanded, ceteris paribus. totally unresponsive when price changes
(vertical line)

17
Q

|PED| -> infinity

A

Perfectly Price Elastic Demand

change in price of good leads to an infinitely large change in quantity demanded, ceteris paribus. totally responsive when price changes (horizontal line)

18
Q

[PED] Determinants: availability & closeness of Substitutes

A

Determinants of PED: (SAINT)
(greater =elastic)
cuz consumers can readily switch to other products that satisfy the same want

19
Q

[PED] Determinants:Addiction

A

(greater = INELASTIC)
cuz more willing to pay to satisfy their addiction

20
Q

[PED] Determinants: proportion of Income spent on the good

A

(greater = elastic)
cuz more significant reduction in consumer’s income or purchasing power

21
Q

[PED] Determinants: degree of Necessity

A

(greater = INELASTIC)
cuz the good is smth cannot do without

22
Q

[PED] Determinants: Time period

A

(longer = elastic)
cuz consumer can spend time to make purchasing decision to get info on availability of substitutes, compare prices, adapt their tastes and preferences

23
Q

What is PED?

A

measures the degree of responsiveness of a good’s quantity demanded to a change in price.

24
Q

what a PED value of -0.37 means

A

1% change in price would bring about only a 0.37% change in Qd in the opposite direction (PED = % change in Qd/ % change in price)

Econs (10 decks)

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