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micro economics > elasticity > Flashcards

elasticity Flashcards

(56 cards)

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1
Q

price elasticity in demand

A

measure of the extent to which a quantity responds to a change in price

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2
Q

elastic

A

% change in demand will be greater than change in price (very sensitive to price)

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3
Q

inelastic

A

% change in price will be greater than the change in demand (no substitutes../necessity)

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4
Q

determinants of PED

A

SPLAT
Substitute
Percentage of income
Luxury good
Addiction
Time

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5
Q

calculating PED

A

%change in Demand/
%change in price

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6
Q

PED = 0

A

Perfectly inelastic
- Price has no effect on demand at all

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7
Q

PED = 0-1

A

Inelastic
- Price has small effect on demand

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8
Q

PED = 1

A

Unitary
- changes are the same

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9
Q

PED 1 < ∞

A

Elastic
- Demand is very sensitive to price

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10
Q

PED = ∞

A

Perfectly elastic
- Buyers will only buy at one price, any increase in price will cut demand

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11
Q

examples of inelastic goods

A
  • toothpick P
    -Coffee A
    -Drugs A
    -Salt P
  • Air line travel short run T
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12
Q

example of elastic goods

A
  • fresh fruit S
  • restaurant meals S/L
  • airline travel long run L/T
  • newspaper S
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13
Q

PED measures

A

the responsiveness of demand for a product following a change in its own price

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14
Q

if inelastic goods price increases revenue

A

increases

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15
Q

if inelastic goods price decreases revenue

A

increases

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16
Q

if elastic goods price increases the revenue

A

decreases

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17
Q

if elastic price increases revenue

A

increases

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18
Q

price elastic

A

demand for price varies lots with price

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19
Q

price inelastic

A

demand for a product doesn’t vary

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20
Q

factors affecting price elasticity of supply

A

BRITS
-Barriers to entry
-Raw material
-Inventory
-Time
-Spare Capacity

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21
Q

How do barriers to entry effect PES

A

Patents or high cost of advertising could make it hard for new firms to enter the market

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22
Q

How does Spare Capacity effect PES

A

If businesses are not running to full capacity they are more able to increase supply because they have more space

The supply of goods and services is often most elastic in a recession when there is plenty of spare labour and capital resources

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23
Q

limitation of raw material on PES

Study These Flashcards
A

Scarcity or high cost of raw materials leads to inelastic supply

In the short run, supply is more inelastic due to production limitations

24
Q

how does inventory effect PES

Study These Flashcards
A

Higher inventory levels make supply more elastic because there is more resources to be allocated,

more scarce it is difficult for suppliers to react to price changes so supply is more inelastic

25
how does time effect PES
In the short term goods and services can not be supplied fast eg in housing, planning permission... or time for crops to grow
26
income inelastic meaning
measures how quantity demanded of a good or service responds to a change in consumer income
27
Income elasticity of demand formula
% change in income / % change in quantity  demanded ​
28
what does (-) YED mean
inferior good
29
what does (+) YED mean
normal good
30
XED Cross elasticity demanded formula
% Change in Quantity Demanded of Good A / % Change in Price of Good B
31
inferior good
As consumer income increases, demand for this good decreases often low cost alternative eg Tesco own brand
32
normal good
as your income increases you demand more of this good eg. Clothes, restaurant meals
33
what is (-) XED
compliments If the price of one good increases people are less likely to buy the other good so the demand for the compliment decreases
34
PES
responsiveness of a goods quantity supplied to a change in its price
35
what is YED of a luxury good
YED > 1
36
YED of necessity
0 < YED <1
37
YED inferior good
YED< 0
38
what is (+) XED
Substitutes Indicating consumers switch from one substitute to another when prices change Because more people will want to buy the substitute Good A if Good B has increased price
39
cross-price elasticity of demand
measures how the quantity demanded of one good changes in response to a change in the price of another good
40
equation of XED
% change in quantity demanded of Good A / % change in price of Good B ​
41
examples of compliments
Printer and Printer ink
42
"determinants" of YED
- social factors - limited time - availability of substitutes/ compliments -consumer income level -type of good (inferior,normal,luxury,necessity)
43
benefits of raw material to PES and example
eg. oil price rises meaning suppliers in countries with easy access and abundant supply of oil (e.g., Saudi Arabia) can quickly increase supply, making oil supply more elastic because of short termism ease
44
PES formula
%change in Q supplied / % change in price
45
PES > 1
elastic
46
PES = 1
unitary
47
PES < 1
inelastic
48
PES = 0
perfectly inelastic
49
PES = ∞
perfectly elastic
50
how elastic is PES in short run
generally inelastic because producers have limited time and resources to adjust their production in the short term
51
how elastic is PES in the long run
supply is more elastic because producers have more time to adjust all inputs
52
What PES if supply responds less than proportionally to a change in price
PES < 1 inelastic
53
What PES if supply responds more than proportionally to a change in price
PES > 1 elastic
54
importance of PES
- helps firms predict how supply might react to a change in price - relevant for policy makers - PES affects how much prices will change after a demand shock
55
what PES is perfectly inelastic
0
56
YED determinants
- Limited time - Availability of substitutes/ compliments -consumer income level type of good -social factors (culture)

micro economics (6 decks)

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