LS 12- Elasticity Flashcards
What does price elasticity of demand measure?
It measures the responsiveness of demand given a change in price
What is demand price elastic?
When a change in price causes a proportionally larger change in demand.
Link: https://www.economicshelp.org/blog/1108/economics/perfectly-elastic-demand/
What is demand price inelastic?
When a change in price is proportionally larger than the change in demand
What are the determinants of price elasticity of demand?
Substitutes- more substitutes, more elastic
Necessity/luxury- necessities are inelastic
Addictiveness- more addictive, more inelastic
Time- more time, more elastic
Proportion of income- more income, more elastic
What is the formula for price elasticity of demand?
PED = Percentage change in quantity demanded / Percentage change in price
What PED values are:
Elastic
Inelastic
Unitary
Elastic- less than -1
Inelastic- between -1 and 0
Unitary- -1
What does price elasticity of supply measure?
It measures the responsiveness of supply given a change in price
What is supply elastic?
When a change in price causes a proportionally larger change in supply.
Link: https://www.economicshelp.org/microessays/equilibrium/elasticity-supply/
What is supply inelastic?
When changes in price are proportionally larger than changes in supply
Link: https://www.economicshelp.org/microessays/equilibrium/elasticity-supply/
What are the determinants of price elasticity of supply?
Time required to produce product- more time, more inelastic
Level of spare capacity- more spare capacity, more elastic
Number of stocks- more stocks, more elastic
Time- more time, more elastic
Perishability- more perishable, more inelastic
What is the formula for price elasticity of supply?
PES= percentage change in quantity supplied/ percentage change in price
What PES values are:
Elastic
Inelastic
Unitary
Elastic- greater than 1
Inelastic- between 0 and 1
Unitary- 1
What are normal and inferior goods?
If income of consumers increases and they buy more of a good, this is a normal good.
If income of consumers increases and they buy less of a good, this is an inferior good.
