LS12- Elasticity

Question 1

PED

Answer 1

Measures responsiveness of demand give a change in price (Q before you P)
>1 demand is price elastic
<1 demand is price inelastic

Question 2

Determinants of PED (SPLAT)

Answer 2

Substitutes (no)- more substitutes means price is more elastic
Percentage of income- greater % means more elastic
Luxury/necessity- luxury’s are more elastic
Addictive- inelastic
Time period- less time means more inelastic

Question 3

PES

Answer 3

Measures responsiveness of supply give a change in price
Change in supply/change in price >1 is price elastic
S/P <1 is price inelastic

Question 4

Determinants of PES (SPLTT)

Answer 4

Stock/finished goods available- more stock available, firm can quickly sell high quantity in a short amount of time if price changes ELASTIC

Perishability of a product- more perishable it is, the harder to stockpile it is, INELASTIC

Level of spare capacity- larger spare capacity, more FaOPr available to respond to price change, ELASTIC

Time required to produce product- if product can be produced quickly, firms can respond to changes in price quickly, ELASTIC

Time- more time gives firms opportunity to expand or reduce production, ELASTIC