Micro Flashcards
PED>1?
Price elastic
PED=1
Unitary elasticity (proportional change)
Factors of PED?
Available substitutes
Proportion of income (more spent = more elas)
Time ( if bought every 2 years then more inelas)
YED?
%^Y
YED sign matters
-ve = inferior goods \+ve= normal goods
YED>1
Income elastic
YED luxuries?
Relatively large YED (always positive)
XED?
%change P good b
XED sign matters
\+ve = substitutes -ve = complements
Larger value = closer compliment / substitute
PES?
%^ P
PES>1
Elastic
Able to respond with change in supply if price changes
PES =1
Change in price = change in demand (proportional)
Determinants of PES?
-Availability of stocks (Price^ then stocks sold at high price) (Price fall the stored and sold when P^) -Availability of fops (Spare capacity etc)
Business significance of PED?
- pricing products
- maximise revenue ( if Inelastic then ^ supply)
Business significance of YED
Forecasting future demand
Business prospects
Predict effect of recession or growth on demand for their product
Business significance of XED?
If large + XED then lower price to steal market competition as close substitutes
If large -XED then prepare if complement price changes
PES ALWAYS POSITIVE ( uses?)
Can prepare excess stock if expect a P^
Fops can be re allocated to respond to change in price (^ or decrease labour)
So they can aim for elastic supplies
Calculate ped
%^P
PED less than 1
Inelastic
YED less than 1
Income Inelastic
Not very responsive to change in Y
(Change in Y > change in QD)
PES less than 1
Price Inelastic
Specialisation + benefits
Concentration of labour on a narrow range of g and s
- increased output
- ^ range of goods available in economy
Specialisation - cons
- cheap imports lead to loss of jobs
- tastes and needs change, specific economy suffers
- finite resources run out = no trade
Division of labour + -
Specialisation of labour- production process broken down into separate taks
- productivity^
- many workers low paid
- monotonous + boring =poor quality
Free market
Resources allocated through market forces of D and S
Command market
Most resources state owned + allocated centrally
Mixed market -
combination of D and S market forces and state allocation of resources
Determinants of Demand
Income Price of alternatives Tastes + fashion Advertising Population size
Determinants of supply
Cop Size of industry Advancement in technology Govt policy Other factors (hurricanes)
