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Econ SL > Price Elasticity > Flashcards

Price Elasticity Flashcards

1
Q

What is price elasticity for demand?

A

Elasticity measures the responsiveness of the QD to change in price.

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2
Q

What is the formula for PED

A

% change in quantity demanded

% change in price

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3
Q

PED>1

A

Elastic

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4
Q

PED<1

A

Inelastic

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5
Q

PED = 1

A

Unit elasticity

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6
Q

PED = 0

A

Perfectly inelastic

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7
Q

PED = infinity

A

perfectly elastic

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8
Q

Is the PED normally negative or positive for normal goods

A

For all Normal goods, PED will be negative, as there
is a negative relationship between price and
quantity on a downward-sloping demand curve.
We always ignore this negative sign.

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9
Q

What does elastic demand look like?

A

A change in price leads to a more than
proportionate change in quantity demanded.

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10
Q

What does inelastic demand look like?

A

A change in price leads to a less than proportionate
change in quantity demanded.

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11
Q

What does unit elastic demand look like?A

A

A change in price leads to an equal proportionate
change in quantity demanded.

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12
Q

What does perfectly inelastic demand look like?

A

A change in price leads to no change on the
quantity demanded.

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13
Q

What does perfectly elastic demand look like?

A

A change in price will lead to an infinite change in
quantity demanded.

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14
Q

What are the 4 determinants of PED (CLiP iT)

A
  • Closeness of substitutes.
  • Luxury or necessity.
  • Percentage of income spent on the good.
  • Time period.
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15
Q

Closeness of substitutes affect PED

A

PED will be more price elastic
if there are close substitutes available.

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16
Q

Luxury or necessity affect PED

A

Luxury goods tend to be price
elastic, and necessities tend to be price inelastic.

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17
Q

Percentage of income spent on the good affect PED

A

The smaller
the percentage of income spent on a good, the more
price inelastic the demand will be.

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18
Q

Time period affect PED

A

In the long run, demand tends to be more
price elastic, as it takes time for consumers to react to
price changes.

19
Q

What is income elasticity?

A

Income elasticity of demand measures the
relationship between a change in quantity
demanded and a change in income.

20
Q

How do you calculate income elasticity (YED)?

A

Percentage change in quantity demanded of good X

percentage change in real consumers’ income

21
Q

income elasticity of normal good

A

positive

22
Q

Necessities income elasticity

A

0 -> +1

Demand rises with income, but
less than proportionately.

23
Q

Luxuries income elasticity

A

> +1

Demand rises more than
proportionate to a change in income

24
Q

Inferior goods income elasticity

A

negative

25
Q

What is PES?

A

Responsiveness of quantity supplied to changes in price

26
Q

How to calculate PES

A
27
Q

What does inelastic supply look like

A
28
Q

PES of elastic supply

A

Elastic Supply PES >1

29
Q

PES of inelastic supply

A

Inelastic Supply PES <1

30
Q

Unit Elasticity PES

A

Unit Elastic Supply PES =1

31
Q

Perfectly inelastic supply PES

A

Perfectly Inelastic Supply PES 0

32
Q

Perfectly elastic supply PES

A

Perfectly Elastic Supply PES undefined

33
Q

What does elastic supply look like?

A
34
Q

What does Perfect elastic supply look like?

A
35
Q

What does perfect inelastic supply look like?

A
36
Q

4 Determinants of PES (TUMA)

A
  • Time period
  • Unused capacity
  • Mobility of factors of production
  • Ability to keep stock
37
Q

Time Period on PES

A

If production can be increased fast, then PES
is elastic. Ifproduction cannot be increased fast, then PES is inelastic

Over time PES becomes more ELASTIC

38
Q

Mobility of factors of production on PES

A

Mobilise = how easy it is to increase production

Low mobility -> INELASTIC

High mobility -> ELASTIC

39
Q

Unused Capacity on PES

A

Unused capacity = When a business is not using all its resources

Unused Capaciy -> ELASTIC

40
Q

Ability to keep stock on PES

A

Perisable goods -> INELASTIC

Storable goods -> ELASTIC

41
Q

What is e cross price elasticity of demand (XED)

A

The cross price elasticity of demand is used to measure the effect a change in price of one product has on the demand for a certain other good.

42
Q

How to calculate XED

A
43
Q

Meanings of XED value

A

If XED is positive they are subsitute goods

If XED is negative they are complementary goods

Econ SL (18 decks)

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