Elasticities Flashcards
(13 cards)
What does PED measure and is it positive or negative?
PED measures how responsive QD is to a change in P.
There is an inverse relationship so PED is always negative.
What are factors that influence PED?
Substitutes
Proportion of income
Luxury/Necessity
Addiction & habit
Time
Brand Loyalty
Inelastic PED and revenue relationship.
Price rise -> QD falls by a small amount -> Total revenue increases.
Price fall -> QD rises by a small amount -> Total revenue falls
Elastic PED and revenue relationship.
Price rise -> QD falls by a large amount -> total revenue falls.
Price fall -> QD rises by a large amount -> total revenue rises.
What is elastic, inelastic and unitary elastic demand?
Elastic means PED more than -1
Inelastic means PED less than -1
Unitary elastic demand = -1
What does YED measure and when is it positive or negative?
YED measures how responsive QD is to a change in income.
Inferior goods -> YED = negative
Normal goods -> YED = positive
What type of normal goods are there and their YED?
Normal luxury -> YED more than 1
Normal necessity -> YED less than 1
What does XED measure?
How responsive QD of one good will be to the change in P of another good.
Are complementary goods positive or negative?
Negative
Are substitute goods positive or negative?
Positive
What XED do unrelated goods have?
XED = 0
What does PES measure and is it positive or negative?
PES measure how responsive QS is to a change in P.
There is a direct relationship so positive.
What are factors that influence PES?
Production Lag (Hard to find FoP)
Spare capacity
State of economy (high unemployment= easy FoP)
Stockpile & Perishability
Time
