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.
- Price elasticity of demand - the responsiveness of demand to a change in price level.
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