TOPIC 3 - ELASTICITY Flashcards
WHAT IS PED?
THE RESPONSIVENESS OF DEMAND TO A CHANGE IN PRICE.
WHAT IS PED AND ITS DETERMINANTS?
- NECESSITY
- ADDICTIVENESS
- SUBSTITUTES
- TIME
- INCOME
- QUALITY
- BRAND LOYALTY
WHAT ARE THE DETERMINANTS OF PES?
- BARRIERS TO ENTRY
- FACTOR MOBILITY
- RAW MATERIALS
- INVENTORY
- TIME
- SPARE CAPACITY.
WHAT IS ELASTIC DEMAND?
DEMAND IS RESPONSIVE TO A CHANGE IN PRICE. ANY CHANGE IN PRICE LEADS TO A GREATER PERCENTAGE DECREASE IN QUANTITY DEMANDED.
WHAT FIGURE REPRESENTS ELASTIC DEMAND?
PED OF LESS THAN -1
WHAT IS INELASTIC DEMAND?
DEMAND IS NOT VERY RESPONSIVE TO A CHANGE IN PRICE. ANY CHANGE IN PRICE LEADS TO A SMALLER PERCENTAGE CHANGE IN QUANTITY DEMANDED.
WHAT FIGURE REPRESENTS INELASTIC DEMAND?
PED IS GREATER THAN -1 BUT LESS THAN 0.
WHAT IS UNITARY ELASTICITY?
PERCENTAGE CHANGE IN QUANTITY DEMANDED EQUALS PERCENTAGE CHANGE IN PRICE.
WHAT FIGURES REPRESENTS UNITARY ELASTICITY?
PED OF 1 FOR PES
PED OF -1 FOR PED
HOW DO YOU WORK OUT REVENUE?
PRICE x QUANTITY
WHAT DOES PERFECTLY ELASTIC DEMAND MEAN?
PED IS INFINITELY NEGATIVE. PURCHASERS WON’T BUY ANY PRODUCT ABOVE A CERTAIN PRICE.
WHAT DOES PERFECTLY INELASTIC DEMAND MEAN?
PED IS 0 AS THE SAME AMOUNT IS DEMANDED WHATEVER THE PRICE.
WHAT IS PES?
RESPONSIVENESS OF SUPPLY TO A CHANGE IN PRICE.
WHAT IS INCOME ELASTICITY OF DEMAND?
RESPONSIVENESS OF DEMAND TO A CHANGE IN INCOME.
WHAT IS THE YED OF NORMAL GOODS THAT ARE NECESSITIES?
WOULD HAVE INCOME ELASTICITIES CLOSER TO 0.
WHAT IS THE YED OF NORMAL GOODS THAT ARE LUXURIES?
WOULD HAVE INCOME ELASTICITIES WITH HIGHER NUMERICAL VALUES.
WHAT WOULD BE THE YED OF INFERIOR GOODS?
NEGATIVE INCOME ELASTICIES OF DEMAND AS A RISE IN INCOME WOULD LEAD TO A FALL IN DEMAND.
WHAT IS CROSS ELASTICITY OF DEMAND?
RESPONSIVENESS OF DEMAND FOR 1 PRODUCT TO A CHANGE IN PRICE OF ANOTHER PRODUCT.
WHAT IS THE XED FOR SUBSTITUTES?
POSITIVE
WHAT IS THE XED FOR COMPLEMENTS/ GOODS IM JOINT OR DERIVED DEMAND?
NEGATIVE
WHAT IS THE XED FOR UNRELATED PRODUCTS?
0
WHAT IS THE EQUATION FOR PED?
Ped = %🔺️ Quantity demand ÷ %🔺️ price
WHAT IS PES?
PES = %🔺️ Quantity demanded ÷ %🔺️ price
WHAT IS YED?
YED = %🔺️ Quantity demanded ÷ %🔺️ income
WHAT IS THE EQUATION OF XED?
XED = %🔺️ Quantity demanded for X ÷ %🔺️ Price of Y
WHAT ARE EXAMPLES OF GOODS WITH INELASTIC PED?
- CIGARETTES
- WATER
- APPLE PRODUCTS
WHAT ARE EXAMPLES OF GOODS WITH ELASTIC PED?
- SOFT DRINKS
WHAT ARE EXAMPLES OF GOODS WITH INELASTIC PES?
- STRAWBERRIES ( LOW INVENTORY)
- DOCTORS ( HIGH BARRIERS TO ENTRY)
- ELECTRIC CARS ( LACK OF RAW MATERIALS)
WHAT ARE EXAMPLES OF GOODD WITH ELASTIC PES?
- WAITERS (HIGH FACTOR MOBILITY)
- ELECTRICITY ( SPARE CAPACITY)
- DIGITAL DOWNLOADS E.G SONGS ( PERFECTLY ELASTIC)
