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Econ test 2 > PED > Flashcards

PED Flashcards

1
Q

PED

A

a measure of how much the quantity demanded of a good changes when there is a change in its own price

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2
Q

PED formula

A

%△Qd/%△P

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3
Q

%△Qd

A

[(Q2−Q1)/Q1]×100

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4
Q

%△P

A

[(P2−P1)/P1]×100

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5
Q

PED > 1

A

Price elastic demand, a change in price leads to a proportionately greater change in the quantity demanded.

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6
Q

0 < PED < 1

A

Price inelastic demand, a change in price leads to a proportionately smaller change in the quantity demanded.

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7
Q

PED = 1

A

Unitary elastic demand, a change in price leads to a proportionately equal change in the quantity demanded.

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8
Q

PED = 0

A

Perfectly inelastic demand, a change in price leads to no change in the quantity demanded.

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9
Q

PED = ∞

A

Perfectly elastic demand, any change in price would lead to an infinite change in the quantity demanded.

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10
Q

draw a price inelastic curve

A

linear, downwards

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11
Q

draw unitary elastic demand curve

A

curved, downwards

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12
Q

draw a perfectly inelastic demand curve

A

y=0, straight line

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13
Q

draw a perfectly elastic demand curve

A

x=0, straight line

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14
Q

determinants of PED

A

The number and closeness of substitutes, The degree of necessity and how widely a product is defined, The time period considered, The proportion of income spent on the good

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15
Q

disposable income

A

The income remaining after deduction of taxes and social security charges, available to be spent or saved as one wishes.

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16
Q

total revenue

A

The money earned by a firm from selling a good or service; the selling price multiplied by the total quantity sold.

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17
Q

commodities

A

A commodity is a primary good, and is an important input to production. Oil, iron ore and timber are all examples of commodities.

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18
Q

firms’ total revenue and elasticity

A

When there is a change in the price of a good or service, the impact on the firm’s total revenue will depend on the price elasticity of demand of the good.

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19
Q

TR1

A

P1×Q1

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20
Q

TR2

A

P2×Q2

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21
Q

The change in revenue

A

TR2−TR1

22
Q

explain relationship between PED and the slope of the demand curve

A

…

23
Q

tax incidence

A

The burden of tax paid by consumers or producers

24
Q

who pays more of the tax when PED is inelastic

A

consumers pay more than producers

25
Q

who pays more of the tax when PED is elastic

A

producers pay more than consumers

26
Q

taxes imposed on elastic PED

A

demand decreases significantly

27
Q

taxes imposed on inelastic PED

A

demand doesn’t change significantly

28
Q

compare PED of commodities and manufactured goods end explain

A

PED of commodities is less elastic than one of manufactured goods because commodities are necessities and there are less substitutes for them

29
Q

volatile

A

liable to change rapidly and unpredictably , especially for the worse, commodities tend to be more volatile

30
Q

Income elasticity of demand (YED)

A

a measure of how much the quantity demanded of a good will change in response to a change in consumers’ incomes

31
Q

YED=

A

% change in the quantity demanded of good X / % change in the income (Y) of consumer, %△Qd / %△Y

32
Q

does a sign in front of YED value matter

A

YES

33
Q

what does a positive sign mean

A

that as incomes increase, quantity demanded of a good increases; and as incomes decrease, quantity demanded decreases (normal goods), upwards linear

34
Q

what does a negative sign mean

A

that as incomes increase, quantity demanded of a good decreases; and conversely, as incomes decrease, quantity demanded increases (inferior goods), downwards linear

35
Q

superior goods

A

Goods with positive income elastic demand, those with a high price that tend to make up a larger share of a consumer’s income as income rises

36
Q

YED < –1
YED > 1

A

income elastic demand, A change in income leads to a proportionately greater change in the quantity demanded.

37
Q

–1 < YED < 1

A

income inelastic demand, A change in income leads to a proportionately smaller change in the quantity demanded.

38
Q

YED = 0

A

Perfectly income inelastic demand, a change in income leads to no change in the quantity demanded.
(Goods with a positive YED value close to zero are considered necessity goods) y=0

39
Q

YED=1

A

no classification, A change in income leads to a proportionately equal change in the quantity demanded

40
Q

recession

A

A recession refers to negative economic growth occurring over two or more quarters.

41
Q

economic recession, if YED>1

A

the quantity demanded of these goods will increase proportionally more than the increase in income, superior goods

42
Q

economic recession, YED<1

A

the quantity demanded of these goods will increase proportionally less than the increase in income, necessities

43
Q

economic recession, YED<0

A

likely to experience an increase

44
Q

primary sector

A

The sector of an economy that involves extraction of natural resources; agriculture and mining are examples

45
Q

secondary sector

A

The sector of an economy where raw materials are combined or changed through manufacturing to make physical products

46
Q

tertiary sector

A

The sector of the economy where services are provided to consumers

47
Q

sectoral change

A

The change in the structure of the economy to increase or decrease production in one sector or another

48
Q

Low income countries therefore typically focus output on

A

primary products

49
Q

When an economy achieves a high level of national income

A

consumers will spend disproportionately more in the tertiary sector (even higher YED) than in the primary and secondary sectors

50
Q

During a recession, will the producer of an inferior good expect sales to increase or decrease?

A

increase

Econ test 2 (3 decks)

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