Microeconomics - Formulas Flashcards

1
Q

Price elasticity of demand (PED)

A

PED = % change in quantity demanded / % change in price

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2
Q

Income elasticity of demand (YED)

A

YED = % change in quantity demanded / % change in income

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3
Q

Cross Elasticity of demand (XED)

A

XED = % change in qty demanded of good A / percentage change in qty demanded of good b

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4
Q

relatively elastic demand curve (PED > 1)

A

the
change in price leads to an even bigger change in demand

\ shape but less steep

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5
Q

relatively inelastic demand curve (PED < 1)

A

demand that is relatively unresponsive to a change in
price

\ shape

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6
Q

unitary elastic good (PED = 1)

A

change in demand which is equal to the change in price

moon crest curve

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7
Q

perfectly inelastic good (PED = 0)

A

demand which does not change when price changes

| shape

shape

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8
Q

perfectly elastic good (PED = infinity)

A

demand which falls to zero when price changes

  • shape
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9
Q

perfectly elastic good (PED = infinity)

A

demand which falls to zero when price changes

  • shape
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10
Q

Factors that influence PED:

A

Necessity - will have relatively inelastic demand (even if price increases significantly, consumers will still demand bread and electricity, because they need it)

Substitutes - if the good has more substitutes (e.g. phones) then demand is more price elastic. The more substitutes, the more price elastic the demand.

Addictiveness or habitual consumption - demand for cigs isnt sensitive to changes in price (even with price increases) because they are addictive.

Proportion of income spent on the good - the greater proportion of a consumers income, the more price elastic

Durability of the good - more elastic demand, consumers wait to buy another one

Peak and off-peak demand - during peak times, (e.g. 9am and 5pm for trains) demand for tickets is more price inelastic.

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