Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > Price, income and cross price elasticities of demand, price elasticity of supply > Flashcards

Price, income and cross price elasticities of demand, price elasticity of supply Flashcards

1
Q

What is a complement?

A

Where an increase/decrease in the demand of one good leads to an increase/decrease in demand of a by-product. (Joint demands)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a substitute?

A

A good’s demand is increased when the price of another good is increased.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

When is two products joint supply?

A

When a rise in the output of one product leads to a rise in the supply of the other product.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is inelastic PED?

A

When demand is less than proportionately responsive to a change in the price level. (Luxury’s with many substitutes)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is elastic PED?

A

When demand is more than proportionately responsive to a change in the level

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How do you find the price elasticity of demand?

A

The percentage change in quantity demanded over the percentage change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

When is PED elastic?

A

> 1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

When is PED unitary? (proportionally responsive to change)

A

1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

When is PED inelastic?

A

<1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

When is PED perfectly elastic? (infinitely responsive)

A

Infinite (price stays the same for any change in demand)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When is PED perfectly inelastic? (not responsive to change)

A

0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are determinants of demand?

A

Substitutes, Percentage of income, Luxury/necessity, A addictive/ habit forming, Time period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Why is PED important to producers?

A

They want to know if an increase in price will lead to higher/lower revenue.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How do you work out revenue?

A

Price x quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How do you calculate PES?

A

percentage change in quantity supplied over percentage change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What does PES show?

A

Measures the response of quantity supplied to a change in price

17
Q

Why will PES always be a positive?

A

The price of a good increases, so more will be supplied

18
Q

When can producers increase their supply without a rise in cost or a time delay?

A

When it’s elastic >1

19
Q

When do firms find it hard to change their production in a given time period?

A

When it is inelastic <1

20
Q

When is a product elastic?

A
  • Made quickly
  • Low cost
  • Few resources
21
Q

When is a product inelastic?

A

takes time to make, scarce resources

22
Q

What is an example of a perfectly elastic supply?

A

Air

23
Q

What is an example of a perfectly inelastic supply?

A

Car park

24
Q

How can firms increase their elasticity?

A

Improving storage, keeping large amounts of stock, adopting, or upgrading the technology, creating spare capacity.

25
Q

What is income elasticity of demand?

A

How responsive demand is to a change in income

26
Q

How do you work out YED?

A

Percentage change in quantity demanded over percentage change in income.

27
Q

What are inferior goods?

A

Has a negative YED. Demand is negatively related to a change in income. Goods will fall in demand if income rises.

28
Q

What is a normal good?

A

Demand is positively related to a change in income. Demand for a good rises as income rises. Luxury and necessity

29
Q

What is a luxury good?

A

Demand rises more than proportionately to a change in income. Income elastic

30
Q

What is a necessity good?

A

Demand is less proportionately responsive to a change in income. Income inelastic.

31
Q

What might affect income elasticity of demand?

A

Attractiveness and how large the proportion of household income is spent on the product.

32
Q

What is cross elasticity of demand (XED)?

A

Responsiveness of demand for one product to a change in price of another product.

33
Q

What is the equation for XED?

A

Percentage change in the quantity demanded for good B over percentage change in price of good A

34
Q

What is the type of product if XED is >1?

A

A substitute

35
Q

What is the type of product if XED is <1?

A

A complement

36
Q

What happens if the XED for a product is 0?

A

Its is completely independent. (no relationship)

Economics (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions