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Economics G11 > Price Elasticity > Flashcards

Price Elasticity Flashcards

1
Q

What is utility

A

The satisfaction we derive from consuming goods and services

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2
Q

What is total utility

A

The total satisfaction gained by adding up all the utils

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3
Q

What is marginal utility

A

The satisfaction gained from conusming the last unit

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4
Q

What is the law of diminishing marginal utility

A

The total utility will rise with each additional unit consumed but at a slower rate, until total utility decreases due to the decreased marginal utility of each unit

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5
Q

What is Price Elasticity Of Demand

A

A measure of how responsive demand is to a change in price

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6
Q

What is the formula for Price Elasticity Of Demand

A

Percentage Change Quantity Demanded / Percentage Change In Price

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7
Q

What are the 5 types of Price Elasticity Of Demand

A

Perfectly Inelastic
Perfectly Elastic
Relatively Elastic
Relatively Inelastic
Unitary Elasticity

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8
Q

What is Perfectly Inelastic

A

The value of PED is always 0 and entirely unresponsive to price changes.
To improve revenue, always increase price

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9
Q

What is Perfectly Elastic

A

Value of PED is more than 1 up to infinity. Demand is extremely responsive to change in price

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10
Q

What is Relatively Elastic

A

The value is more than 1 but less than infinity. The demand is responsive to a change in price.
To improve revenue, always decrease price

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11
Q

What is Relatively Inelastic

A

The value of PED is less than 1 but more than 0. Demand is very unresponsive to changes in price.
To improve revenue, increase price only

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12
Q

What is Unitary Elasticity

A

Value of PED is 1.
Responsiveness of demand is proportionate to the change in price
Price changes have no effect on revenue

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13
Q

What is Price Elasticity Of Supply

A

The measure of responsiveness of supply to a change in price

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14
Q

What is the Short-run

A

The period of time in which the producer is faced with at least one fixed input

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15
Q

What are the 2 inputs that are fixed in the short-run

A

Land and Capital

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16
Q

What is the formula for Price Elasticity Of Supply

A

Percentage change in quantity supplied / percentage change in price

17
Q

What are the 3 factors that influence PES

A

Number of suppliers in the market
Time taken to produce the product
Nature of the product and durability

18
Q

How does number of suppliers in the market affect PES

A

When there are only a few suppliers of a product, price increases are not followed by large increases in the quantity supplied

19
Q

How does time taken to produce the product affect PES

A

Products that take a lot of time to produce, will result in the output being less responsive to changes in price

20
Q

How does the nature of the product and durability affect PES

A

Goods that are easily stored are generally low priced and in abundant supply

21
Q

What are the variables that affect PED (5)

A

Proportion of income spent on the product
Frequency with which the product is purchased
Time
Availability of substitute products
Addictive and irreplaceable products

22
Q

How does the proportion of income spent on the product affect PED

A

If consumers spend a small amount of their income on a good, their demand will be unresponsive to changes in price

23
Q

How does the frequency with which the product is purchased affect PED

A

A consumer is less likely to be concerned about the price of a good if it is not bought often

24
Q

How does Time affect PED

A

If unlimited time is available to shop, consumers will be more responsive to price changes

25
Q

How does availability of substitute products affect PED

A

When there is only one supplier of a product, choice is limited and consumers have to pay whatever price is charged. Therefore less responsive

26
Q

How do addictive and irreplaceable products affect PED

A

If products are addictive or irreplaceable, demand is less responsive to changes in price

27
Q

Look at page 107

A

.

28
Q

What does Income elasticity of demand measure

A

The responsiveness of demand to a change in income

29
Q

What is the formula for IED

A

Percentage Change quantity demanded / Percentage change in income

30
Q

What is a normal good

A

A good that is demanded more when income increases

31
Q

What is an inferior good

A

A good that is demanded less when income rises

32
Q

Look at page 109

A

.

33
Q

What Cross Elasticity of Demand

A

The measure of the responsiveness of demand for one good to a change in the price of another good

34
Q

What is the formula for CED

A

Percentage change in quantity demanded of Good A / Percentage change in price of good B

35
Q

What are substitutes

A

Goods that have specifically been produced to be repleacements for each other

36
Q

What is CED for substitutes

A

Positive

37
Q

What are complements

A

Two goods that are used together or in conjunction with each other

38
Q

What is CED for complements

A

Negative

Economics G11 (12 decks)

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