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Micro Economics > Part 3 - Elasticity > Flashcards

Part 3 - Elasticity Flashcards

1
Q

What is the price elasticity of demand?
(PED)

A

Responsiveness of demand to a change price

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2
Q

How to calculate PED?

A

Percentage change in quantity demanded / percentage change in price

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3
Q

What is elastic demand?

A

Any change in price leads to a greater % change in quantity demanded
(ans greater than 1, ignore ‘-‘ sign)

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4
Q

What is inelastic demand?

A

Any changes in price leads to smaller percentage change in quantity demanded
(ans less than 1, ignore ‘-‘ sign)

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5
Q

What is unitary demand?

A

Percentage change in quantity demanded = percentage change in price
(ans = 1, ignore ‘-‘ sign

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6
Q

How to calculate total revenue?

A

Price x quantity

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7
Q

What determines PED?
(NASTY QB)

A

Necessity
Addictive
Substitutes
Time
Income (% of)
Quality (of product)
Brand Loyalty

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8
Q

What is price elasticity of supply?
(PES)

A

Responsiveness of quantity supplied to a change in price

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9
Q

How to calculate PES?

A

% change in quantity supplied / % change in price

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10
Q

PES in short run is … ?

A

Relatively inelastic as at least on FOP is fixed

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11
Q

PES in long run is .. ?

A

More elastic as all FOP can be changed

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12
Q

Examples of goods with elastic supply?

A

Waiters (low skill), electricity, digital downloads

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13
Q

Goods with inelastic supply?

A

Doctors (high skill), strawberries, beef, electric cars

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14
Q

What determines PES?
(B FRITS)

A

Barriers to entry
Factor Mobility
Raw Materials (availability)
Inventory (stocks)
Time
Spare Capacity

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15
Q

What is income elasticity of demand?
(YED)

A

Responsiveness of demand to a change in income

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16
Q

How to calculate YED?

A

% change in quantity demanded / % change in income

17
Q

Types of income elasticity?

A

Income Inelastic = score of 0 - 1
Unitary elastic - score of 1
Income elastic - score greater than 1

18
Q

What is cross price elasticity of demand?
(XED)

A

The responsiveness of demand for product A to a change in demand for product B

19
Q

How to calculate XED?

A

% change in quantity demanded for A / % in price of B

20
Q

What are substitutes?

A

(positive XED) rise in price of one product raises demand for other

21
Q

What are complements?

A

(negative XED) rise in price of one product reduces demand for other

22
Q

What are unrelated goods?

A

(XED = 0) have no relation

Micro Economics (5 decks)

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