PED, YED and PES Flashcards
Define ‘price elasticity of demand’ and state its equation.
The responsiveness of demand to a change in price of a good/service
PED = %∆ in QD ➗ %∆ in Price
What is inelastic demand?
A change in price resulting in a smaller change in the quantity demanded
What is elastic demand?
A change in price resulting in a greater change in the quantity demanded
What are the 5 types of PED?
Perfectly Inelastic Demand Relatively Inelastic Demand Unitary Elastic Demand Relatively Elastic Demand Perfectly Elastic Demand
What is the equation for profit?
Profit = Total Revenue - Total Costs
Define ‘total revenue’ and state its equation.
The amount of money generated from the sale of goods
Price x Quantity Sold
What are the six factors affecting PED?
Proportion of income spend on a product Luxury vs degree of necessity Addictive goods No. of uses Time period Substitutes
How does the proportion of income spent on a product affect PED?
The greater proportion of income spent on the product, the more price elastic the product is.
How does a product’s degree of necessity affect its PED?
The more of a luxury the product is, the more price elastic it is.
How does the addictiveness of a product affect PED?
The more addictive the good is, the more price inelastic it is.
How does a product’s number of uses affect PED?
The more uses the product has, the more price inelastic it is.
How does the length of time a product can be used for affect PED?
The more time it can be used for, the more price elastic it is.
How does the availability of substitutes affect PED?
The more substitutes a product has, the more price elastic it is.
Define ‘income elasticity of demand’ and state its equation.
The responsiveness of demand to a change in income
YED = %∆ in QD ➗ %∆ in Income
What type of goods are income inelastic?
Necessities and addictive goods
What type of goods are income elastic?
Luxury goods
Define the term ‘discretionary expenditure’.
Non-essential spending/spending that isn’t automatic
Define ‘price elasticity of supply’ and state its equation.
The responsiveness of supply to a change in price of a good/service
PES = %∆ in QS ➗ %∆ in Price
State the seven factors affecting PES.
Stocks Time Ease of Entry/Exit Mobility of FoPs Production Speed Spare Capacity Scarcity
How does stocks affect PES?
The more stocks there is of a product, the more responsive firms can be and therefore the more elastic the product is.
How does time affect PES?
The longer length of time a product takes to be produced, the less responsive firms can be and therefore the more inelastic the product is.
However, the more time firms have to react, the more elastic a product is.
How does the ease of entry affect PES?
The more barriers to entry there are into a product’s industry, the more inelastic the product is.
How does the mobility of factors of production affect PES?
The more easily producers can switch production factors to other uses, the more elastic supply is.
How does production speed affect PES?
The faster a product can be produced, the more elastic the product is.
How does spare capacity affect PES?
The more spare capacity a producer has, the more elastic their supply is.
How does scarcity affect PES?
The more scarce a product is, the more inelastic supply is.
