Economics- Price determination in a competitive market Flashcards
(26 cards)
What are examples of inferior goods?
Baked beans, betting shops
How can you tell if a good is a normal good?
When it’s YED is positive
PED
The responsiveness of demand to changes in price
YED
The responsiveness of demand to changes in income
XED
The responsiveness of the demand of one good to a change in price of another good.
PED Equation
Δ Demand/ Δ Price
YED Equation
Δ demand/Δ income
XED Equation
Δ demand of good 1/ Δ price of good 2
Normal good
A good whose demand increases as income increases
What would a demand curve signify if it had a steep gradient
It is inelastic
inferior good
A good whose demand increases as income decresaes
Elastic
When a good’s demand can easily change when its. price changes
What is the term for when a good’s elasticity is 1?
Unit elastic
Inelastic
When a good’s demand can’t easily change as much when there’s a change in price
Veblen good
A type of luxury good whose demand increases as price increases
Factors that affect elasticity
The amount of alternatives to the product
Factors that affect elasticity
Is a PED of 0.5 elastic?
No
Is a PED of 1.75 elastic?
Yes
What is the PED if the price increases from £1 to £1.50 and demand decreases from 5000 to 4100 units? Is it elastic or inelastic?
0.36, inelastic
Revenue
the amount of money a business gets from selling its products
How can you tell an inferior good from its YED
When it’s YED is negative
What is the XED if the price of peaches rise from £1 per pack to £1.49 per pack and the demand for nectarine s go from 15 000 units to 25 000 units? Give your answer to 2 significant figures.
1.4
PES
The responsiveness of quantity supplied to a change in price
