1841317
Description
Flashcards by Amardeep Kumar, updated more than 1 year ago
|
|
Created by Amardeep Kumar
almost 10 years ago
|
|
| Question | Answer |
| Define market equilibrium. | Market equilibrium is when supply and demand intersect. This determines the equilibrium price and quantity, which is the price that producers and consumers agree to trade. |
| Define price elasticity of demand. | This is the measure of the responsiveness of a proportionate change in demand to a proportionate change in price. |
| What are the main characteristics of an elastic demand curve? | -The demand curve is relatively flat in shape -A change in price leads to a greater change in quantity demanded -The availability of substitutes means that demand is price elastic -The longer the time period available to adjust to a rise in price, the greater the elasticity -Example of price elastic goods: new cars (substitutes available), drugs (to encourage consumption), Air travel (long time period). -The Price Elasticity of Demand > -1 -Demand is Perfectly Price Elastic = Infinite -A cut in price will increase total revenue -A rise in price will decrease total revenue |
| What are the main characteristics of an inelastic demand curve? | -The demand curve is relatively steep in shape -A change in price leads to a smaller change in quantity demanded -If there are no appropriate substitutes available, demand is price inelastic -The shorter the time period available to adjust to a rise in price the greater the price in-elasticity of demand -Examples of price inelastic goods: petrol (essential, small price range), water (essential) Air travel (short time period) -The Price Elasticity of demand -Demand is Perfectly Price Inelastic = 0 -A rise in price will increase total revenue -A cut in price will decrease total revenue |
| How is the Price Elasticity of Demand calculated? | % Change in Quantity Demanded -------------------------------------------------- % Change in Price |
| Define income elasticity. | This is the measure of the responsiveness of the proportional change in quantity demanded due to a proportionate change in income. |
| What is the income elasticity of normal, inferior, luxury and necessity goods? | -Normal goods = positive income elasticity -Inferior goods = negative income elasticity -Necessity goods = income elasticity < 1 -Luxury goods = income elasticity > 1 |
| How is income elasticity of demand calculated? | % Change in Quantity Demanded ---------------------------------------------------- % Change in Income |
| Define cross elasticity of demand. | Cross elasticity is the measure of a proportionate change in demand fore one good in response to a proportionate change in the price of a related good. |
| What is the cross elasticity of demand of the 2 types of related related goods? | 1. Substitute goods - the X.E.D. for substitute goods is positive, because they have a positive relationship 2. Complementary goods - the X.E.D for complementary goods is negative, because they have a negative relationship |
| What is the calculation for the cross elasticity of demand? | % ^ Quantity Demanded for good X ---------------------------------------------------------- % ^ Price of Good Y |
| Define price elasticity of supply. | This is the measure of the responsiveness of a proportionate change in price due to a proportionate change in price. |
| What are the characteristics of an elastic supply curve? | -The supply curve is drawn relatively flat -A change in price will lead to a proportionally greater change in the quantity supplied -Producers therefore find it easier to respond to higher prices by increasing supply -The availability of substitutes means that supply is price elastic -The longer the time period available to adjust to a rise in price, the greater the elasticity -e.g. Cars are supply elastic - producers can switch resources to and from cars to respond to changes in demand for other cars -Price Elasticity of Supply > 1 = Elastic |
| What are the characteristics of an inelastic supply curve? | -The supply curve is drawn relatively steep -A change in price will lead to a proportionally smaller change in quantity demanded -Producers find it more difficult to increase supply in response to a rise in price -There are no appropriate substitutes available for goods which are supply inelastic -The shorter the time period available to adjust to a rise in price, the greater the in-elasticity -e.g. farming - a farmer will have to significantly change prices in response to a change in demand - it takes months to grow crops -Price Elasticity of Supply < 1 = inelastic |
| What is the formula for calculating the Price Elasticity of Supply? | % Change in Quantity Supplied ---------------------------------------------------- % Change in Price |
Want to create your own Flashcards for free with GoConqr? Learn more.