Micro 1.2.3 Flashcards

1
Q

How to work out PED?

A

%change in demand / %change in price

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2
Q

What if PED is less than -1?

A

Price elastic

If cut in price, increase in revenue

If rise in price, decrease in revenue

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3
Q

If PED between 0 and 1?

A

Price inelastic

If price cut, revenue fall

If price rise, revenue increase

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4
Q

If PED is =1?

A

Unit elastic

Same revenue if price cut or price rise

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5
Q

What if PED= 0

A

Perfectly inelastic

If price cut, revenue fall

If price rise, revenue increase

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6
Q

If PED = infinity?

A

Perfectly elastic

Price cut, revenue increase

Price rise, revenue decrease

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7
Q

What determines PED?

A

Availability of substitutes

Time (most inelastic at first but soon become elastic)

Actual price (expensive or cheap)

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8
Q

YED formula?

A

%change in demand / %change in income

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9
Q

YED 0-1 or 1+ shows?

A

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

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10
Q

If YED <0?

A

Inferior good

Demand falls as income rises

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11
Q

XED formula?

A

%change in demand of A
/
% change in price of B

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12
Q

If XED is positive?

A

Products are in competing demand. Substitutes.

If 0-1 then weak substitute

If 1+ then strong substitute

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13
Q

If XED negative?

A

Goods are in joint demand

They are compliments

0–1 it is weak compliment

If

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14
Q

What is PES formula and what is it?

A

%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

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15
Q

Determinants of PES?

A

Time

Agricultural products take time to grow

Having to find new materials

Stock of finished products and components

Ease of switching between alternatives

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