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Economics > PED, PES > Flashcards

PED, PES Flashcards

1
Q

Define PED (Price elasticity of demand)

A

The responsiveness/sensitivity of demand to changes in price.

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2
Q

State the PED number of an elastic good

A

Greater than 1

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3
Q

State the PED number of an inelastic good

A

Between 0 and 1

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4
Q

Define elastic demand

A

Demand is sensitive to price changes

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5
Q

Define inelastic demand

A

Demand is less sensitive to price changes

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6
Q

State the formula to calculate PED

A

Percentage change in quantity demanded/Percentage change in price

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7
Q

Determinant of PED (7)

A

addictiveness

time

Brand loyalty

Income

Substitutes

Necessity/Luxury

Ease and Cost of switching substitute

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8
Q

Define perfectly price inelastic (D)

A

Quantity demand remains constant whatever the price

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9
Q

State the PED value for a perfectly price inelastic graph

A

0

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10
Q

Define infinitely price inelastic/perfectly price elastic (D)

A

Unlimited demand but only at one price

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11
Q

State the PED value for an infinitely price inelastic graph/perfectly elastic graph

A

infinite

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12
Q

Define unitary elasticity (D)

A

proportion which quantity demanded changes = proportion at which price changes

Revenue stays the same at any price

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13
Q

State the PED for an unitary elastic graph

A

1

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14
Q

Define revenue

A

the money a firm makes from sales

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15
Q

Define total revenue (formula)

A

price x quantity sold

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16
Q

State what a firm should do to price to maximise revenue when demand is inelastic

A

Increase price

17
Q

State what a firm should do to price maximise revenue when demand is elastic

A

decrease

18
Q

Define price elasticity of supply

A

Responsiveness of supply to a change in the price

19
Q

State the formula for PES

A

percentage change in quantity supplied/percentage change in price

20
Q

Explain why PES is always positive

A

The direct relationship between price and supply and the upwards slope of the supply curve causes PES to always be positive

21
Q

State the value of PES if it is elastic

A

PES > 1

22
Q

State the value of PES if it is inelastic

A

0< PES < 1

23
Q

Explain elastic PES

A

The quantity supplied will change by a greater proportion than the change in price

24
Q

Explain inelastic PES

A

The quantity supplied will change by a smaller proportion than the change in price

25
Q

State a factor which determines PES (T)

A

The time taken to produce it - Producers are able to respond immediately to a change in price

26
Q

State a factor which determines PES (C)

A

The cost of changing supply

27
Q

State a factor which determines PES (S)

A

Storage of good - Producers can respond to price changes better by changing stock levels –> PES more elastix

28
Q

Define perfectly inelastic supply

A

Supply is fixed no matter the price

29
Q

Define perfectly elastic supply

A

Unlimited supply at a fixed price

30
Q

How does PED change in an outward shift in demand

A

reduces PED as consumers are less sensitive since they want to buy more

31
Q

How does PED change in an inward shift in demand

A

increases PED as consumers are more sensitive since they have less of a desire to buy more

32
Q

Why do consumers benefit from elastic demand

A

producers reluctant to raise prices as demand would decrease by a greater proportion

33
Q

Why will firms want their supply to be as elastic as possible

A

profits will be higher as they can react more quickly to price increases

34
Q

Why are consumers likely to benefit from elastic demand (2)

A

more likely to get lower price - reluctant to increase price as consumers would react quickly

more likely to get better quality - producers may remain competitive with substitutes, more distinct product lowers PED as it wont be seen as a substitute

35
Q

Why might a government need to know the PED of a good (3)

A

may want to discourage/encourage consumption of certain good

more successful if demand elastic as change in price would cause greater change in quantity demanded

less successful if demand inelastic as change in price would cause a smaller change in quantity demanded

36
Q

Why would consumers benefit from elastic supply

A

supply is responsive to consumer demand - changes in price to changes in quantity demanded cause no shortages or surpluses

37
Q

Why might producers want supply to be elastic

A

higher profits as they can adjust supply in response to price/demand

38
Q

Why may governments want supply to be elastic

A

more effective in changing demand - less money required to change

Economics (4 decks)

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