Elasticity Flashcards
Elasticity of: Demand, Supply, income, Cross Price
Define Price elasticity of demand?
The responsiveness of the quantity demanded to a change in price
What’s the PED formula
PED= %^Qd/%^P
What does it mean if PED is above 1
It is price elastic
What does it mean if PED is below 1
It is price inelastic
What are the factors affecting PED?
Availability of substitutes Cost of switching supplier Breadth of definition Degree of necessity Time frame Brand loyalty % of income spent Habitual demand (routine)
What does it mean if PED is 1
It is unitary elastic
What is total revenue (TR)
The amount of money made
Demand X price
What is marginal revenue (MR)
The change in revenue at each price
Define cross price elasticity of demand (XED)
The responsiveness of demand for one good to a change in the price of another good
What’s the formula for XED
XED = %^QdA/%^PB
What is the XED if it is >1
Close substitute good
What is the XED if it is <1
Distant substitute good
What is the XED if it is
Close compliment good
What is the XED if it is >-1
Distant compliment good
Define Income elasticity of demand (YED)
The responsiveness of demand for a good to change in income
YED formula
YED = %^Qd/%^Y
What is YED is <0
It is an inferior good
What is YED if it is between 0 and 1
A normal necessity good
What is YED if it is above 1
It is a normal luxury good
Define price elasticity of supply (PES)
The responsiveness of supple to a change in the price
What is the formula for PES
PES = %^PES/%^P
What is PES if it is between 0 and 1
It is inelastic
What is PES if it is above 1
It is elastic
Is the curve horizontal or vertical for perfectly inelastic
Horizontal
