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Section 2 - Competitive Markets > Price, Income And Cross Elasticities Of Demand > Flashcards

Price, Income And Cross Elasticities Of Demand Flashcards

1
Q

Price elasticity of demand shows

A

How demand changes with price.

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2
Q

Price elasticity of demand is a measure of

A

How the quantity demanded of a good responds to a change in its price.

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3
Q

PED calculated

A

Percentage change in quantity demanded

/

Percentage change in price

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4
Q

PED can be

A

Elastic, inelastic or unit elastic.

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5
Q

Elastic (relatively elastic) demand is when

A

PED > 1

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6
Q

What does elastic demand mean??

A

A percentage change in price will cause a larger percentage change in quantity demanded

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7
Q

Perfectly elastic demand

A

PED of plus minus infinity.

This means any increase in price means that demand will fall to zero.

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8
Q

Inelastic (relatively inelastic) demand PED is

A

Between 0 and 1

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9
Q

Inelastic demand means

A

A percentage change in price will cause a smaller percentage change in quantity demanded.

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10
Q

Perfectly inelastic demand

A

Has a ped of 0. Which means that any change in price will have no effect on the quantity demanded.

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11
Q

Unit elasticity of demand PED =

A

+-1

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12
Q

A good has unit elasticity if

A

The size of the percentage change in price is equal to the size of the percentage change in quantity demanded.

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13
Q

Income elasticity of demand shows

How is it written??

A

How demand changes with income

YED

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14
Q

YED formula

A

Percentage change in quantity demanded of a good

/

Percentage change in real income

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15
Q

Income elastic

A

YED > 1

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16
Q

Income inelastic

A

YED < 1

17
Q

Perfectly inelastic YED =

A

0

18
Q

Cross elasticity of demand (XED) is a measure of

A

How the quantity demanded of one good responds to a change in the price of another good.

19
Q

XED calculation

A

Percentage change in quantity demanded of good A

/

Percentage change in price of good B

20
Q

Good substitutes XED is

A

Positive

21
Q

Goods are complements XED =

A

Negative

Section 2 - Competitive Markets (13 decks)

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