Micro 1.2.3 Flashcards
How to work out PED?
%change in demand / %change in price
What if PED is less than -1?
Price elastic
If cut in price, increase in revenue
If rise in price, decrease in revenue
If PED between 0 and 1?
Price inelastic
If price cut, revenue fall
If price rise, revenue increase
If PED is =1?
Unit elastic
Same revenue if price cut or price rise
What if PED= 0
Perfectly inelastic
If price cut, revenue fall
If price rise, revenue increase
If PED = infinity?
Perfectly elastic
Price cut, revenue increase
Price rise, revenue decrease
What determines PED?
Availability of substitutes
Time (most inelastic at first but soon become elastic)
Actual price (expensive or cheap)
YED formula?
%change in demand / %change in income
YED 0-1 or 1+ shows?
0-1 shows income inelastic. Demand changes less than proportionately
1+ shows income elastic. More than proportionate change in demand
Both for luxury goods and normal goods
If YED <0?
Inferior good
Demand falls as income rises
XED formula?
%change in demand of A
/
% change in price of B
If XED is positive?
Products are in competing demand. Substitutes.
If 0-1 then weak substitute
If 1+ then strong substitute
If XED negative?
Goods are in joint demand
They are compliments
0–1 it is weak compliment
If
What is PES formula and what is it?
%change in supply /
%change in price
If elastic, produces can change their output without a rise in cost or time delay
If inelastic, hard to change production
Determinants of PES?
Time
Agricultural products take time to grow
Having to find new materials
Stock of finished products and components
Ease of switching between alternatives