PED, YED AND XED Flashcards
Equation for YED?
%change in Quantity Demanded
divided by
%change in Income
Define YED?
YED is a measure of the sensitivity of the proportionate change in demand to a proportionate change in income.
What does it mean if YED is positive?
The good is normal (income elastic), such as luxuries.
What does it mean if YED is negative?
The good is inferior, such as tescos own brand produce.
What does it mean if YED is zero?
The good is described as ‘income inelastic’, such as necessities.
Define XED?
XED is a measure of the sensitivity of the proportionate change in demand to a proportionate change in price of another good.
What does it mean if XED is positive?
The goods are substitutes.
What does it mean if XED is negative?
The goods are complements.
What does it mean if XED is zero?
The goods are independent.
What is the equation for XED?
%change in Quantity Demanded of One Good
divided by
%change in Price of Another Good
Why does a demand curve slope downwards from left to right?
1) substitution effect
2) income effect
What causes a movement along a demand curve?
A change in the goods price.
What causes a shift in the demand curve?
IPPAFEL
What do the different values of PED mean?
PED>1 - good is elastic PED<1 - good is inelastic PED=1 - good has unit elasticity PED=0 - perfectly inelastic PED=infinite - good is perfectly elastic (horizontal)
Total revenue =?
Price per unit of a good multiplied by the quantity sold.
What are the 6 determinants of PED?
Availability of substitutes Luxury and necessity of goods Proportion of income spent on good Addictive and habit forming goods The time period Brand image
What does a positive YED mean?
It means the good is a normal good.
What does a negative YED mean?
It means the good is an inferior good.
What is XED used to determine?
If goods are complements (-ve XED) or substitutes (+ve XED).
What causes movement along a supply curve?
A change in the goods price. (Rise in price causes extension, fall in price causes a contraction in supply)
Define supply?
Supply refers to the quantity of a good or service that firms are willing to sell at a given price.
What causes a shift in the supply curve?
CPPC
Define PES?
PES is a measure of the responsiveness of the supply of a good to a change in the price of that good.
Different values of PES?
PES>1 - good is price elastic PES<1 - good is price inelastic PES=1 - good is unit elastic PES=0 good is perfectly inelastic PES=infinite - the good is perfectly elastic (horizontal curve)
Determinants of PES?
Level of space capacity State of economy Level of stocks of finished goods in a firm Perishability of a product The ease of entry into the industry Time period under consideration
What does equilibrium mean?
It means there is a balance in the market, with no tendency for price or output to change.
What is the substitution effect?
When the price of a good falls it becomes comparatively cheaper compared to its substitutes so demand for that good goes up.
What is the income effect?
When the price of a good falls, it’s price takes up a smaller percentage of a consumers income therefore they can buy more of that good (purchasing power increases).
Why does a supply curve have a positive gradient?
As price rises it encourages firms to supply more of the good to make more profit.
As firms raise output in short run, production costs rise, and so consumers have to pay more - higher prices allow more (smaller) firms to enter the market.
Give an example of a good that is perfectly inelastic in its supply?
A football match ticket at a stadium - set amount of seats so QS can not change.
