Consumer/producer Flashcards
(18 cards)
What is consumer surplus
Consumer surplus is when the price the consumers pay for a product is less than the price they were willing and able to pay for.
What is Producer Surplus
Producer surplus is when the producer is willing and able to sell a product at a lower price but receives a higher price
What is PED
PED is price elasticity of demand which measures the responsiveness of quantity demanded to a change in price
What is YED
YED is income elasticity of demand which measures the responsiveness of quantity demanded due to change in income
What is XED
XED is cross elasticity of demand which measures the responsiveness of quantity demanded for one good to a change in the price of another good
What is the equation for PED
PED= %🔼Q
————
%🔼P
When is PED elastic and inelastic
When PED >1 then it is elastic
When PED <1 then it is inelastic
What are the factors that influence PED
SPLAT
S-substitutes
P-proportion of income
L-luxury or necessity
T-time
Why is PED effective
PED is important as firms use it to determine their pricing strategy.
If demand is inelastic increasing the price will lead to an increase in revenue.
What is the equation for YED
YED = % change in QD / % change in income
When is YED inelastic or elastic
If YED>1 it is income elastic
If YED<1 it is income inelastic
What does a positive YED tell us
That would is A normal good.
What is a normal good
A normal good is a good that as disposable income rises so does demand for the goods
What are the two differences in positive YEd
YED that exceeds 1 means it is a luxury whilst lower than 1 means it is a necessity
What does it mean if it is a negative YEd
A negative YEd tells us that it is an inferior good. Meaning as disposable income rises the demand for these goods decrease for example store labelled goods or second hand goods
