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Economics - Ethan Parmar > Topic 3 - Price , Income and Elasticity > Flashcards

Topic 3 - Price , Income and Elasticity Flashcards

1
Q

What is elasticity

A

A measure of the extent which a quantity responds to a variable

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2
Q

What is price elasticity of demand

A

Measure of how demand chanegs in response to changes price

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3
Q

What does elastic demand mean

A

Where the percentage change in demand is greater than the change in prices

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4
Q

What is inelastic demand

A

Where the percentage change of price is greater than the percentage change in demand

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5
Q

How do you calculate price elasticity of demand

A

Percentage change of demand/ Percentage change of prices

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6
Q

Which curve would have a steeper gradient, an inelastic or elastic demand curve

A

Inelastic

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7
Q

What are features of price elastic goods

A

They are very responsive to price change
Many substitutes
Widely available
Are luxury items
Consumers have no time limit

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8
Q

Features of price inelastic goods

A

Less responsive to price change
Are neccessities
Unique
Short in supply
Few substitues
Habit forming

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9
Q

Does a product being inelastic mean it isnt affected by price rises

A

No

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10
Q

What does a PED of 0 mean

A

It is perfectly inelastic and price has no effect

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11
Q

What does a PED of less than 1 mean

A

It is inelastic, but price has a small effect

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12
Q

What does a PED of 1 mean

A

The change of price and demand are equal

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13
Q

What does a PED of more than 1 mean

A

Demand is sensitve to price

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14
Q

On elastic goods what will increases in price do to revenue

A

Decrease the total revenue

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15
Q

For inelastics goods what will increases in price lead to

A

Increased revenue

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16
Q

What are factors that influence the PED

A

Time
Number of subs
Cost of switching between products
Luxury or neccesity?
Proprotion of income spent on the product
Trends
Branding

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17
Q

How do the government intervene if a market isnt allocating resources effectively

A

Through taxes and subsidise

18
Q

What is the incidence of tax

A

The proportion of tax passed onto the consumer

19
Q

Who absorbs the tax on price elastic goods

A

Business absorbs most of the tax as demand will fall

20
Q

What is the impact of tax on price on inelastic products

A

Taxes are easily passed on

21
Q

What does it mean for the gov, when elastic goods prices rise

A

The government lose out of revenue

22
Q

What will a rise in price of elastic goods do too employment

A

Employment will fall more, cyclical unemployent

23
Q

What will a rise in inelastic demand do too employment

A

Not, much as demand is still there

24
Q

What is income elasticity of demand

A

It measures the responsiveness of demand when income changes

25
Q

What can happen to demand as incomes changes

A

It can increase or decrease

26
Q

Meaning of income elastic

A

Where demand changes more than the change in income

27
Q

What does income inelastic mean

A

Where the change in demand is less than the change in income

28
Q

How do you calculate the income elasticity of demand

A

Percentage change in quantity of demand / Percentage change in income

29
Q

What is cross price elasticity of demand

A

Measures the extent in which the demand for one good changes in response to the change in price of another

30
Q

What type of goods would you see effects of the cross elasticity of demand

A

Complementary goods (joint demand )

Substitutes (competing demand)

31
Q

How do you calculate the cross price elasticity of deand

A

%age change in quantity of A / %age change of price of B

32
Q

What would a small rise in price of close substitues do to the demand for the other product

A

Change it alot

33
Q

What would a small rise in price of weak substitues do to the demand for the other product

A

Not change it alot

34
Q

What would a small fall in price of close complementary products do to the demand for the other product

A

Change it alot

35
Q

What does brand do to the effect cross elasticity of demand

A

Decrease it as cosnumers are likely to be habitual purchasers and go to that brand as a default choice

36
Q

What will the CPED for substitues be

A

Always positive

37
Q

What will the CPED for complemntary products be

A

Negative

38
Q

What would the demand curve of an elastic good look like

A

More horizontal

39
Q

What would the demand curve of an inelastic good look like

A

X =1

40
Q

What would the demand curve for a perfectly inelastic good look like

A

Completelemy vertical

41
Q

What would the demand curve for a perfectly elastic good look liek

A

Colmpletely horizontal

Economics - Ethan Parmar (73 decks)

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