External Environment Flashcards
What is elasticity?
The extent of a change in demand and/or supply given a change in price
What is PED?
Price elasticity of demand =
Change in quantity demanded as a % of original demand
DIVIDED BY
Change in price as a percentage of original price
Q/P - q pissing
What do PED numbers mean?
PED less than 1 = inelastic demand
PED more than 1 = elastic demand
PED = 1 = unit elasticity
What does a demand curve with a PED value of 0 look like?
Vertical straight line
What does a demand curve with a PED of infinity look like?
Horizontal straight line
What is a Giffen good?
One whose DEMAND increases when there is an increase in price, usually basic goods like loo rolls or Spooky
What is a Veblen good!
One whose demand goes up when price goes up but ones that are bought for show, like sports cars or handbags
What is cross elasticity of demand and what is the formula?
A measure of the responsiveness of demand for one good to changes in the price of another good
Cross elasticity of demand = % change in quantity of good A demanded* / % change in the price of good B
DP - d pen
What do the scores mean with cross elasticity?
If the two goods are SUBSTITUTES then cross elasticity will be positive
If the two goods are COMPLEMENTS then cross elasticity will be negative
For unrelated goods, such as tea and oil, cross elasticity will be 0
What is PES?
Price elasticity of supply
P is always on the bottom
It is a measure of the responsiveness of supply to a change in price
If there is a rise in interest rates, the exchange rate for sterling will be higher, this keeps the costs of exports high and the costs of imports will be cheaper
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True or false, in a perfect market, consumers should lack influence over market price?
True
True or false, in a recession there will be a rise in the rate of inflation?
No
Falling demand in a recession will not cause inflation
How would you go about reducing demand-pull inflation using interest rates?
Increase interest rates
What does supply side economics concern?
The behaviour of the aggregate supply curve in connection with the levels of prices, incomes and employment.
