Learning Sequence 12 Micro

Question 1

Price elasticity of demand

Answer 1

Measures the responsiveness of demand given a change in price

Question 2

Price elastic (demand )

Answer 2

%change in demand is greater than %change in price

Question 3

Price Inelastic (demand)

Answer 3

%change in demand is less than %change in price

Question 4

Determinants of price elasticity of demand

Answer 4

Number of substitutes, - the more substitutes the more elastic demand is
necessity/luxury, - people require it no matter what, inelastic, won’t change in response
addictiveness, - inelastic as it does not change in response to price, got to have it
time, - gives more opportunity to find another alternative, elastic
proportion of income - greater income spent, the more elastic it is
S N L A T P
snl at this point

Question 5

Number of Substitutes

Answer 5

The more substitutes there are, the more elastic the demand will be, as if there are more substitutes, that means the consumers have alot of other options so the demand of other substitutes may fall or rise.

Question 6

Necessity/luxury

Answer 6

Necessity: something we need day to day, there is no other choice but to defo buy it, demand inelastic as we neeeed to have them.
Luxury: example could be a holiday or a brand new car, this is not needed, but is a choice a consumer makes, price is elastic as some people may not buy it, demand drops, or some people may buy it, demand rises

Question 7

Addictiveness

Answer 7

This is habitual behaviour, ie drugs, vaping, alcohol, this is what people need to do, they will buy it no matter what, so it wouldn’t matter to them if the price drops or rises, demand will still stay the same as it’s a choice they’re making.

Question 8

If it’s a choice we make it’s…

Answer 8

Demand elastic

Question 9

Time

Answer 9

Time gives consumers to find opportunities for alternatives. The greater the time, the more choice we have, meaning the demand is elastic
But if left to a short period of time, we need to get something quickly, the demand is inelastic bc at that point it becomes sort of a necessity

Question 10

Proportion of income

Answer 10

If small proportion of income is being used to buy a good, the price is inelastic, as the minor change won’t deter them from buying.
But if it’s a large percentage of income, the demand will be elastic, as it is a bigger change and can affect if they want to buy it or not

Question 11

How to know via percentage is elastic or inelastic

Answer 11

For one lined questions with percentages already given:
If demand is larger, it is price elastic
If demand is smaller it is price inelastic
If same same, it is unitary and neither

For actual working out questions:
Ped = 1 (unitary)
Ped > 1 (elastic)
Ped < 1 (inelastic)

Question 12

Formula for price elasticity of demand

Answer 12

Percentage change in quantity demanded. / percentage ch age in price
(New-old/old *100) for both
Do it separately then put tog

Question 13

Derived demand

Answer 13

Demand for a good or service that is a result of thr demand for another good or service

Demand for making a house makes the demand for builders rise

Question 14

Effective demand

Answer 14

The amount of a product or service consumers are willing and able to buy
So there could be a demand for a luxury car, but the effective demand would be actually the people who are willing to buy the car and have the money to

Question 15

Joint demand

Answer 15

When the demand for one good is directly linked to the other
If people have a high demand for printers, they’d have a high demand for ink

Question 16

Composite demand

Answer 16

When a good is used for multiple reasons, so the increase in demand for one use, can then affect availability in the other uses.
Like milk is used for cheese, butter, dairy. If the demand for milk in the cheese industry rises, this means it can maybe drive up prices for the dairy industry. It’s all connected bc it’s multi purpose
Examples are sugar, flour, timber, milk

Question 17

When is supply said to be price elastic v inelastic

Answer 17

Change in price causes a larger change in supply is elastic
Inelastic is when it causes a proportionally smaller change in supply

Question 18

Determinants of price elasticity of supply

Answer 18

Time required to produce product - the more time needed to produce a good, the more inelastic it is, as firms can’t respond to it quickly
Level of spare capacity - the more spare capacity there is, the quicker the quantity can be increased, more elastic
Number of stocks- the more stock available, the more elastic it is
Time - greater the time, gives firms a greater opportunity to expand, more elastic
Perishability of the product - the more perishable, the harder it is to get stocks of it, the more inelastic supply is
TNLTP

Question 19

Formula of price elasticity of supply

Answer 19

%change in quantity supplied/%change in price

Question 20

Price elasticity of supply

Answer 20

Measures reponsivenss of supply given a change in price

Question 21

Price elastic (supply)

Answer 21

%change in supply is greater than %change in price

Question 22

Price inelastic (supply)

Answer 22

%change in supply is less than %change in price