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Econ SL > Price Elasticity of demand > Flashcards

Price Elasticity of demand Flashcards

1
Q

Price elasticity of demand (PED)

A

A measure of the responsiveness of the quantity of a good to changes in its price, given by the percentage change in quantity demanded divided by the percentage change in price

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2
Q

PED<1

A

Inelastic
* companies increase price to increase revenue

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2
Q

PED>1

A

Elastic
* companies have to decrease price to increase revenue

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3
Q

PED=0

A

Perfectly inelastic
* companies can charge very high prices

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4
Q

PED=1

A

Unitary Elasticity
* companies are unable to increase revenues

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5
Q

PED=∞

A

Perfectly Elastic

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6
Q

Price Inelastic Demand

A

Relatively low resposniveness of demand to price

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7
Q

Price Elastic demand

A

Relatively high resposniveness of demand to price

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8
Q

Perfectly inelastic

A

Refers to a price elasticity of demand value of 0 and arises in the case of a vertical demand curve indicating that any only one amount can be bought at any price

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9
Q

Necessities

A
  • goods that are essential and necessary
  • price inelastic
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10
Q

Perfectly elastic

A

Refers to a price elasticity of demand value of infinity and arises in the case of horizontal demand curve indicating that any quantity can be bought at that one specific price

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11
Q

Unitary PED

A
  • %change in quantity is equal to %change in price
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12
Q

Total revenue

A
  • Quantity sold x Price
  • the amount of money received by frims solely from their sales
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12
Q

Luxuries

A
  • goods that are not necessary or essential
  • price elastic
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13
Q

Price Elasticity of demand value formula

A

%Change in Quantity/%Change in price

You Queue then you Pee

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14
Q

Determinents of PED

A
  • necessity or luxury
  • time
  • availibility of substitutes
  • proportion to income
15
Q

How to cslculate revenue on a PED curve

A

Price x Quantity

16
Q

How to calculate govenment tax revenue on PED curve

A

Pt x Qt

17
Q

Spotting tax on PED curve

A

verticsl distance between S1 and S2 at same quantity

18
Q

How does implementing tax change the supply curve

A
  • looks like it shifts up as for every unit a fixed increase was added
  • supply curve actually shifts left

Econ SL (7 decks)

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