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Economics AS Level > Theme 1: Elasticities > Flashcards

Theme 1: Elasticities Flashcards

1
Q

What is the definition of price elasticity of demand?

A

How responsive demand is to a price change

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2
Q

Give the formula for PED

A

% Change in qd/% change in p

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3
Q

What is meant by price elastic demand?

A

Demand is very responsive to price changes

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4
Q

What values constitute price elastic demand?

A

-1 to infinity

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5
Q

Draw a price elastic and demand curve

A
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6
Q

What is meant by perfectly price elastic demand?

A

Where the price stays the same no matter the quantity demanded

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7
Q

What values constitute perfectly elastic demand?

A

Infinity

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8
Q

Draw a perfectly elastic demand curve.

A
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9
Q

What is meant by price inelastic demand?

A

Where quantity demanded is quite unresponsive to a change in price

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10
Q

What values would constitute price inelastic demand?

A

Between 0 and -1

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11
Q

Draw a price inelastic demand curve

A
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12
Q

What is meant by unit elastic demand?

A

Where quantity demanded changes by the same percent as price

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13
Q

What values constitute unit elastic demand?

A

-1

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14
Q

Draw a unit elastic demand curve

A
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15
Q

Give 3 factors which influence the PED of a product

A

Number of close substitutes, habit, percentage of income

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16
Q

What is the definition of cross price elasticity of demand?

A

How a price change in good A changes the QD of good B

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17
Q

Give the formula for XED

A

% Change in qd of good a/ change in price of good b

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18
Q

What is the definition of substitute goods?

A

Two similar goods that consumers replace with one another.

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19
Q

What values of XED would constitute a substitute good?

A

Positive values

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20
Q

What is the definition of complementary goods?

A

Goods that are used together

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21
Q

What values of XED would constitute complementary goods?

A

Negative values

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22
Q

What would a XED of zero indicate?

A

The goods are unrelated

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23
Q

What is the definition of income elasticity of demand?

A

How responsive quantity demanded is to a change in income

24
Q

Give the formula for YED.

A

% Change in QD / % change in Income

25
Q

What is the definition of an inferior good?

A

A good whose demand increases when income decreases eg - own brand items

26
Q

What values of YED would constitute an inferior good?

A

Negative values

27
Q

What is a Normal good?

A

A good whose demand increases when income increases

28
Q

What values of YED would constitute a normal good?

A

Positive values

29
Q

What is the definition of a luxury good?

A

A good for which demand increases more elastically as income increases

30
Q

What values of YED would constitute a luxury good?

A

1 to infinity

31
Q

What is another term for a luxury good?

A

Upmarket good

32
Q

What is the term for a normal good which isn’t a luxury good?

A

Necessary good

33
Q

Why do firms need to know the price elasticity of demand for their products?

A

If inelastic, they should increase the price but if elastic they should decrease the price

34
Q

Under what circumstances would an increase in price increase the revenue genned from a product?

A

If the good is inelastic

35
Q

Under what circumstances would an increase in price decrease the revenue gained from a product?

A

If the good is elastic

36
Q

Under what circumstances would an increase in price leave revenue unchanged?

A

If the good is unitary

37
Q

Why do firms need to know the cross price elasticity of demand for their products?

A

To know whether their good is a substitute or complement to a specific good

38
Q

Why do firms need to know the income price elasticity of demand for their products?

A

To know whether their good is a normal or inferior good

39
Q

Under what circumstances would a recession increase the sales of a product?

A

If its an inferior good

40
Q

What is the definition of price elasticity of supply?

A

How responsive supply is to a change in price

41
Q

Give the formula for PES

A

% change in QS/ % change in price

42
Q

What is meant by price elastic supply?

A

Where supply is very responsive to changes in price

43
Q

What values would constitute price elastic supply?

A

Greater than 1

44
Q

Draw a price elastic supply curve

A
45
Q

What is meant by perfectly price elastic supply?

A

Quantity supplied is very responsive to price changes meaning if the price changes there will be no more supply

46
Q

What values would constitute perfectly elastic supply?

A

Infinity

47
Q

Draw a perfectly elastic supply curve

A
48
Q

What is meant by price inelastic supply?

A

Supply is unresponsive to price changes

49
Q

What values would constitute prize inelastic supply?

A

Between zero and one

50
Q

Draw a price inelastic supply curve

A
51
Q

Give factors which influence the PES of a product (TEASS)

A

Time, State of economy, Availability of FOPs, spare capacity, stocks and perishability

52
Q

What is meant by perfectly price inelastic supply?

A

No matter how much the price changes quantity supplied doesn’t change

53
Q

What values would constitute perfectly inelastic supply?

A

0

54
Q

Draw a perfectly inelastic demand curve

A
55
Q

What is the economic definition of the long run?

A

The period of time in which at least one factor of production is fixed

56
Q

Why is PES more elastic in the long run?

A

Because firms have time to increase capacity

Economics AS Level (5 decks)

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