Economics - Chapter 5

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  • Created on: 01-11-14 11:45
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  • CHAPTER 5: Elasticity
    • Price elasticity of demand - the responsiveness of demand to a change in price level.
        • PED = NEGATIVE
    • Subsidies - payments by government to producers to encourage production of goods/services. Typically means that prices can be lower than usual.
    • Incidence of tax - proportion of tax that is passed onto the consumer. High = most of a tax rise is passed onto the consumer i.e. when demand is price inelastic.
    • Income elasticity of demand - the proportion to which demand changes when there is a change in income.
    • Substitutes - goods that can be used as alternatives to another good.
    • Commodity - a good that is traded, but usually refers to raw materials or semi-manufactured goods that can be traded in bulk i,e, tea or oil. Often they are unbranded goods where all firms' products are very similar.
    • Price elasticity of supply - the responsiveness of supply to changes in price level.
        • PES - POSITIVE
    • Cross elasticity of demand - the extent to which changes in the price of one good affects demand for another good.


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