Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

MICRO ECONOMICS > Price Elasticity Of Demand > Flashcards

Price Elasticity Of Demand Flashcards

1
Q

Price elasticity of demand

A

Measures the responsiveness of quantity demanded given a change in the goods own price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

PED calculation

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Elasticity

A

Is the extent to which buyers and sellers respond to changes in market conditions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

PED will normally be negative…

A

Because the demand curve is downwards sloping, I.e there is a negative relationship between price and quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Elastic demand

A

Is one in which the change in quantity demanded due to a change in price is large

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Inelastic demand

A

Is one in which the change in quantity demanded due to a change in price is small

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

> 1 (elastic demand)

A

If the value of PED is greater than 1, the demand for the good is elastic

  • Means a percentage change in price will cause a larger change in quantity demanded
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

PED = infinity

A

Perfectly elastic demand has a PED of infinity and any increase in price means that demand will fall to ZERO.

  • Consumers are willing to buy all they can obtain (at P in diagram), but none at a higher price
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

0 < PED < 1

A

The value of PED for goods with inelastic demand is between 0 and 1.

  • This means that a percentage change in price will cause a smaller percentage change in quantity demanded
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

PED = 0

A

Perfectly inelastic demand has a PED of 0 and any change in price will have no effect on the quantity demanded.

  • At any price. The quantity demanded will be the same.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

PED
= +/- 1

A

Unit elasticity of demand - a good has unit elasticity if the size of the percentage change in price is equal to the size of the percentage change in quantity demanded.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Determinants of PED

A

BANDITS:
- Brand
- Addictive
- Necessity
- Definition
- Income
- Time
- Substitutes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Inelastic

A

Unresponsive to a change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Elastic

A

Responsive to a change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Brand

A

The brand image, strong brands like Coca Cola are typically more inelastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Revenue

A

The money made from selling your product.

= price x quantity

17
Q

Elastic (>-1)- relevance to business

A
  • Price increases = decreases total revenue
  • Price decreases = increases total revenue
18
Q

Unit elastic (-1) - relevance to business

A

Price increase or decrease doesn’t change total revenue

19
Q

Inelastic demand (0-1) - relevance to business

A
  • Price increases = increase in total revenue
  • Price decreases = decrease in total revenue
20
Q

Definition

A

The breadth of definition of the product in question

  • Nuts are broad definition and is inelastic compared to almonds which are more elastic
21
Q

Inelastic vs elastic - diagram

A

MICRO ECONOMICS (20 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions