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H460/01 Microeconomics Paper 1 > 2.6 Elasticity > Flashcards

2.6 Elasticity Flashcards

1
Q

What is Elasticity?

A

A measure of the responsiveness of one economic variable to another.

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2
Q

What is Elasticity of Demand?

A

Measures the amount that the quantity demanded of a good changes in response to changes in price or income.

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3
Q

What is price elasticity of demand?

A

Measure’s how much a change in price will change the amount of a good a consumer will demand.

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4
Q

What is something called when you are unlikely to change your demand for something?

A

Price Inelastic.

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5
Q

What is something called when your demand is willing to change?

A

Price elastic.

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6
Q

What main two factors help determine price elasticity?

A

(1) The availability of substitutes.

(2) Whether its a Luxury/Necessity

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7
Q

If the demand curve is steep will it be price elastic or inelastic?

A

Elastic

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8
Q

If the demand curve is flatter will it be price elastic or inelastic?

A

Elastic

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9
Q

What is the Equation for PED?

A

Change in QD% / Change in P%

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10
Q

How do you work out % change?

A

New Value-Old Value/Old Value then times that by 100 to get %

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11
Q

If PED is greater than 1 it is…?

A

Elastic

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12
Q

If PED is Less than 1 it is…?

A

Inelastic.

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13
Q

At the top of the demand curve it is…?

A

Elastic

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14
Q

At the bottom of the demand curve it is…?

A

Inelastic.

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15
Q

What would a tax do if a product was inelastic?

A

The tax will end up being paid by the consumer and not the firm, e.g. Cigarettes.

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16
Q

What would a tax do if a product was elastic?

A

Producers may choose to include the tax in their own costs.

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17
Q

What are Subsidies?

A

Funds given to firms to produce certain goods, e.g. EU farmers.

18
Q

What is the goal of a subsidy?

A

To shift supply to the right.

19
Q

What would the Subsidy do if the product had a highly inelastic PED?

A

Shift to the right to supply means price will fall. but quantity only increases slightly.

20
Q

What would the Subsidy do if the product had a highly elastic PED?

A

The Subsidy would lead to a large increase in quantity produced but a smaller fall in price.

21
Q

What does YED actually measure?

A

How much you will change your spending by.

22
Q

What is a Formula for YED?

A

Change in QD / Change in Income.

23
Q

What does the demand for normal goods increase with?

A

With income.

24
Q

If the YED is P but less than 1 it is known as what?

A

Necessity good.

25
Q

What is the value of a luxury good?

A

Positive YED that is greater than one.

26
Q

What is Income elasticity of Demand?

A

Measures how much a change in peoples income will change the amount of a good a consumer will demand.

27
Q

What is Cross Elasticity of Demand?

A

Measures the change in demand for a good when the price of another good changes.

28
Q

What does XED actually measure?

A

How much your spending will change, and whether the two goods are substitutes.

29
Q

What is the formula for XED?

A

Change in QD % / Change in P for another good %

30
Q

If the XED is positive, what would the two goods be?

A

Substitutes, e.g. Tea and coffee, as demand for tea falls, the other rises.

31
Q

Do normal goods have P or N YED values?

A

Positive, e.g. a car.

32
Q

If the is less than 0, it is negative, then what would the two good be?

A

They are complements, e.g. milk and coffee, demands for both rise/fall together,

33
Q

What is Price Elasticity of Supply?

A

Measure’s the amount that quantity supplied will change as a response to a change in price.

34
Q

What does PES look at?

A

Looks at the behaviour of the producers instead.

35
Q

What does PES actually measure?

A

Measures how much the supply will change by.

36
Q

What does it mean if something is inelastic for PES?

A

Businesses are unlikely to change the quantity supplied by a significant amount if the price for it changes, S will be Steep.

37
Q

If something is elastic, what will that mean, PES.

A

Means the businesses are likely to change the quantity supplied by a amount due to the change in price, S is less steep.

38
Q

What is the formula for PES?

A

Change in Price % / Change in Quantity Supplied

39
Q

If PES is greater than 1 it is ___ Less than 1 it is _____

A

1) Elastic

2) Inelastic

40
Q

What’s the two factors effecting PES?

A

1) Spare Capacity = Higher price PES, means factors of productions may be unused.
2) Price change

H460/01 Microeconomics Paper 1 (7 decks)

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