Micro Flashcards Preview

Economics HL IB > Micro > Flashcards

Flashcards in Micro Deck (60)
Loading flashcards...
1

Non price determinants of demand

1. Changes in Income
-demand forNormal goods increases
-demand for inferior goods decreases
2.Prices of Other goods (substitutes&complements)
3.Tastes/Preferences
4.Size of pop.
5.Change in age structure
6.Change in income distribution
7.Change in government policy

2

Non price determinants of supply

1.Costs of factors of productions
2.State of Technology
3.Expectations of future prices/demand
4.Government Intervention

3

how do you calculate PED?

%change in quantity demanded of a product
------------------------divided by--------------------------
% change in price of the product

4

Range of values of PED

0 to NEGATIVE infinity

5

when is demand for a product deemed to price elastic?

when the change in the quantity demanded of a good is MORE THAN PROPORTIONAL TO the change in the price of a good.
(when PED is between -1 and negative infinity)

6

when is demand for a product deemed to price inelastic?

when the change in the quantity demanded of a good is LESS THAN PROPORTIONAL to the change in the price of a good.
(when PED is between0 and -1 )

7

Increasing the price of good whose demand is inelastic.....

....... leads to an increase in total revenue

8

Increasing the price of good whose demand is elastic.....

....... leads to a decrease in total revenue

9

Total revenue

Price of a product x quantity traded of a product

10

Determinants of PED

1. Time period (D=more price elastic over longer time)

2.Number and closeness of substitutes

3.how widely a product is defined (e.g. bread & white bread)

4. extent to which product is a necessary

11

how to measure XED?

%change in quantity demanded of product X
------------------------divided by--------------------------
% change in price of product Y

12

If XED is positive............

............. an indication that the goods are substitutes

13

If XED is negative............

............. an indication that the goods are complements

14

Demand is said to be cross INELASTIC........

............if the XED value is between -1 and 1

15

Demand is said to be cross ELASTIC........

............if the XED value if it is NOT between -1 and 1

16

What is the business relevance of XED?

1.Allows a firm to predict the effect a change in price of another product from another firm will have on their own revenue
2.Allows firms to set prices of their own products to effect demand of their other products allowing them to influence their own total revenue.

17

How do you calculate YED?

%change in quantity demanded of a product
------------------------divided by--------------------------
% change in consumer income

18

A product is deemed a NORMAL good if........

..........the YED value is POSITIVE

19

A product is deemed an INFERIOR good if........

..........the YED value is NEGATIVE

20

Demand for a product is deemed income inelastic if............

..........the YED value is between 0 and 1

21

Demand for a product is deemed income elastic if............

..........the YED value is greater than 1

22

Products with low but positive YED are called.......

.......necessity goods

23

What is the business relevance of YED estimates?

Indicate prospects for firms (effect of economic growth and recessions on revenue)

24

How do you calculate PES?

%change in quantity supplied of a product
------------------------divided by--------------------------
% change in price of the product

25

What is the range of PES values?

0 to +infinity

26

when is supply deemed perfectly price inelastic?

when the PES value = 0

27

when is supply deemed price inelastic?

When PES is between 0 and 1

28

when is supply deemed unit elastic?

When PES is 1

29

When is supply deemed elastic?

When PES is between 1 and infinity.

30

When is supply said to be perfectly price elastic?

when PES= infinity