Market Elasticities Flashcards
What are four conditions of PED?
- Availability of close substitutes
- Proportion of income spent
- Nature of product
- Passage of time
When a close substitute is available, will the product be relatively more price elastic or inelastic?
Rel more price elastic.
If the product’s price is a high proportion of a consumer’s income, will the product be relatively more price elastic or inelastic?
Rel more price elastic.
If the product is a necessity, will the product be relatively more price elastic or inelastic?
Rel more price inelastic.
If the product is a luxury, will the product be relatively more price elastic or inelastic?
Rel more price elastic.
If the product is a ‘reputed’ necessity, will the product be relatively more price elastic or inelastic?
Rel more price inelastic.
If the product has a short run use, will the product be relatively more price elastic or inelastic?
Rel more price inelastic.
If the product has a long run use, will the product be relatively more price elastic or inelastic?
Rel more price elastic.
If two products are substitutes, will they have a positive or negative cross elasticity of demand?
Positive
If two products are compliments, will they have a positive or negative cross elasticity of demand?
Negative
Give three conditions of PES
- Spare production capacity.
- Stocks of components/ingredients and stocks of finishes products.
- Ease (and cost) of factor substitution.
Will normal goods have a positive or negative income elasticity of demand?
Positive
Will inferior goods have a positive or negative income elasticity of demand?
Negative
