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Flashcards in Elasticities Deck (47):
1

Elasticity def

a measure of the sensitivity of one variable to changes in another variable

2

PED def

Price elasticity of demand - a measure of the sensitivity of quantity demanded to a change in the price of a good or service

3

PED eqt

percentage change in quantity demanded / percentage change in price

4

percentage change eqt

N - O / O

5

remember PED

ignore '-' sign

6

if PED / S > 1

relatively price elastic - percentage change in quantity demanded > percentage change in price

7

if 0 < PED / S < 1

relatively price inelastic - percentage change in quantity demanded < percentage change in price

8

if PED / S= 1

unitary price elastic - percentage change in quantity demanded = percentage change in price

9

total revenue etq

total revenue = price x quantity

10

if PED / S= 0

perfectly inelastic - totally insensitive to price - price has no effect on demand

11

PED / S= 0 on graph

straight vertical line

12

0 < PED / S < 1 on graph

steep demand curve

13

PED / S > 1 on graph

shallow demand curve (more horizontal)

14

PED /S = 1 on graph

an actual demand CURVE / an straight 45 degree supply curve

15

if PED / S= infinite

perfectly price elastic - change in price = quantity demand will fall to 0

16

PED /S= infinity on graph

horizontal line

17

total revenue: price inelastic

price increases, TR increases

18

total revenue: price elastic

price increases, TR falls

19

influences on PED

1. availability of substitutes
more substitutes = easier to switch to cheaper alternative = price elastic
2. necessity or luxury
necessity = no substitutes = price inelastic
luxury = not essential / needed = price elastic
3. relative share of goods / service in overall expenditure
cheap = not notice any small changes = price inelastic
more expensive = more price elastic
4. time period
price elasticity increases over time
b/c if price increase for a short period of time still price inelastic b/c habit and commitment to a certain pattern of consumption. If long run, consumers eventually find a cheaper alternative

20

Profit eat

total revenue - total costs

21

total revenue: unitary price elastic

price rises / falls = no change

22

direct tax def

a tax levied directly on an individual or organisation e.g. income tax

23

indirect tax def

a tax levied on expenditure on goods or services e.g. specific / ad valorem tax

24

specific tax def

a tax charged as a fixed amount per unit of good

25

ad valorem tax def

a tax charged as a percentage of the price of a good

26

indirect tax diagram

1. labels: in context / y = price, x = quantity / D, S, S+tax
2. inward shift in supply (tax per unit)
3. contraction in demand / new equilibrium
4. draw horizontal line where q2 hits S - tax levied on consumer is between p1 and p2 - whole area = tax revenue
5. if price inelastic = more tax levied on consumer
6. change in consumer / producer surplus

27

subsidy def

a grant given by the government to producers to encourage production of a good or service

28

subsidy diagram

1. labels: in context / y = price, x = quantity / D, S, S+subsidy
2. outward shift in supply (subsidy per unit)
3. extension in demand / new equilibrium
4. draw horizontal line where Q2 hits S - benefit of subsidy to consumer is between p1 and p2 - whole area = total cost of subsidy to government
5. if price inelastic = more benefit of subsidy to consumer
6. change in consumer / producer surplus

29

ad valorem diagram

tax per unit increases as quantity increase so is a slope

30

PES def

Price elasticity of supply - a measure of the sensitivity of quantity supplied to a change in the price of a good or service

31

PES eqt

percentage change in quantity supplied / percentage change in price

32

influences on PES (4)

1. Spare capacity - they cannot this into use
2. ease and cost of factor substitution - how easy resources cab be substituted between goods / if transferred easily
3. stock of infused products and components - if already have stock room = if sudden excess of demand can respond quickly and sell
4. time - elasticity increases over time - more time for suppliers to provide / respond

33

YED def

a measure of the sensitivity of quantity demanded to a change in consumer incomes

34

YED eqt

percentage change in quantity demanded / percentage change in consumer incomes

35

YED > 0 (pos)

normal - increase in income, increase in demand

36

YED < 0 (neg)

inferior - increase in income, fall in demand

37

YED > 1

luxury good - increase in income, increase in demand

38

0 < YED < 1

necessity - will be bought where there is a change of income or not

39

remember YED

not all consumers view the goods in the same way

40

YED = 1

unitary income elastic

41

XED def

a measure of the sensitivity of quantity demanded of a good/ service to a change in price of another good / service

42

XED > 0 (pos)

increase in price of good Y = increase in quantity demanded of good X = substitutes

43

XED < 0 (neg)

increase in price of good Y = decrease of quantity demanded of good X (complements)

44

0 < XED < +/-1

weak substitutes / complements

45

XED > -/+1

strong substitutes / complements

46

XED = 0

X and Y are unrelated

47

SOUP CAN

Substitutes
Positives
Complements
Negatives