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Year 2 Revision of Year 1 A Level Economics > Microeconomics 2.6 Elasticities of Demand > Flashcards

Microeconomics 2.6 Elasticities of Demand Flashcards

1
Q

Elasticity

A

Responsiveness of a chnage in one thing to a change in something else.

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2
Q

Price Elasticity of Demand

A

Measures the responsiveness of demand after a change in price

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3
Q

PED is calculated by

A

% change in quantity demanded/ % change in price

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4
Q

PED=0

A

Perfectly inelastic- when price changes the QD does not change at all.

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5
Q

PED= 0 to -1

A

Inelastic demand-when price changes the QD changes by a proportinally smaller amount.

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6
Q

PED=-1

A

Unit elastic- when price changes the QD changes by the same percentage

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7
Q

PED= -1 to -inifinity

A

Elastic demand- when price changes QD proportionally changes by a larger percentage.

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8
Q

PED=- infinity

A

When price changes, the QD changes infinitely. There can only be one price.

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9
Q

When a firm faces inelastic demand, an increase in the price will….

A

Increase revenue

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10
Q

When a firm faces inelastic demand, a decrease in the price will….

A

lead to a fall in revenue

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11
Q

When a firm faces elastic demand, a fall in price will lead to ….

A

an increase in revenue

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12
Q

When a firm faces elastic demand, an increase in price will lead to ….

A

a fall in revenue

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13
Q

If close substitues are available, PED will be….

A

more elastic

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14
Q

If the good is a necessity, PED will be….

A

more inelastic

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15
Q

If the good takes up a large proportion of a consumer’s income, the PED will be….

A

more elastic

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16
Q

If complementary products lock consumers into a deal then PED will be

A

inelastic

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17
Q

If consumers are addicted to the good, the PED will be..

A

closer to 0 (inelastic)

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18
Q

In the short run, PED is more likely to be

A

Inelastic

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19
Q

In the long run, PED is more likely to be

A

elastic

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20
Q

YED stands for

A

income elasticity of demand

21
Q

Formula for calculating income elasticity of demand

A

% change in quantity demanded/ % change in income

22
Q

Income elasticity of demand

A

measures the responsiveness of demand after a change in income.

23
Q

Why is it essential to use + or - signs in YED?

A

Because goods can be luxury, normal or inferior and the signs help with this.

24
Q

What is another way to think about elasticity?

A

It is how sensitive a consumer is to a change in price, income or the price of another good.

25
Q

Luxury good

A

(Positive elastic good), when income changes, QD increases by a greater proportion. YED more than 1

26
Q

Normal good

A

When income changes QD increases but by a smaller proportion

27
Q

YED=0

A

When income changes, the QD does not change at all.

28
Q

Inelastic inferior good

A

When income changes the QD changes by a smaller percentage in the opposite direction.

29
Q

Elastic inferior good

A

When income changes the QD changes by a larger percentage in the opposite direction.

30
Q

YED= 5

A

Luxury good

31
Q

YED= 0.5

A

Normal good

32
Q

YED= -0.5

A

Inelastic inferior good

33
Q

YED=-5

A

Elastic inferior good

34
Q

Bus transport

A

Elastic inferior good

35
Q

Basic sliced bread

A

Inelastic inferior good

36
Q

Clothing

A

Normal good

37
Q

Jewellery

A

Luxury good

38
Q

XED

A

Cross elasticity of demand

39
Q

Formula to calculate XED

A

% change in QD product A / % change in price of Product B

40
Q

Cross elasticity of demand

A

Measures the responsivness of demand for one product to a change in the price of another product.

41
Q

XED= 1 to infinity

A

Elastic substitute- when price of Product B changes, the QD of Product A changes by a larger percentage in the same direction.

42
Q

XED= 0 to 1

A

Inelastic substitute- when the price of product B changes, smaller percentage change in QD of product A. (Weak substitute)

43
Q

XED= -1 to infinity

A

Elastic complement- when price of product B changes, the QD of product A changes by a larger percentage in the opposite direction. (Close complements).

43
Q

XED=0

A

No relationship

44
Q

XED 0 to -1

A

Inelastic complement- when the price of product B changes the QD of product A changes by a smaller percentage in the opposite direction. (Weak complements)

45
Q

*

Coke and Pepsi

A

Elastic substitutes

46
Q

*

Tea and coffee

A

Weak substitutes

47
Q

Bread and butter

A

Weak complements

48
Q

Petrol and cars

A

Strong complements

Year 2 Revision of Year 1 A Level Economics (10 decks)

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