elasticities

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  • Created by: vicky
  • Created on: 22-12-12 12:30
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  • Elastisities
    • YED
      • What does 2 mean? NORMAL GOODS
      • What does the relationship show? the responses of demand depend on the change of income
      • What does -2 mean? INFERIOR GOODS
      • EQUATION: % change in demand DIVIDED BY % change in real income
      • EXAMPLE: Different businesses talor towards different incomes. For example, Asda taylor twards lower income, making their products inferior and therefore have a NEGATIVE elasticity. Whereas somehwere like Waitrose would cater for higher incomes threfore maiing their goods normal and therefore have a POSITIVE elastisity
        • GOVERNMENT: they would distinguish policies and look at income affects for example VAT
    • PED
      • -2 means? INELASTIC
        • 1 means? PERECT
          • 2 means? PRICE ELASTIC
            • The price change can have a large affect on the demand
              • EXAMPLE: If holdsay prces decrease by 10% the demand for them would rise by 20%
          • Always stays the same
            • EXAMPLE: Medicine
        • A change in price has little change on demand because these are nessesaties
          • EXAMPLE: cars and petrol or bread and butter
      • OVERAL EAMPLE : If  businesses want more consumers then they will lower the prices. If they want higher income they will increasse the price but not so much that they willl lose customers
        • If the GOV.  want more money they will increase taes
      • EQUATION: % change in quantity demanded for good A DIVIVED BY % change in price of good A
      • What doies the relationship show?If you increase the price of a product it will decreasein demand
    • XED
      • what does 2 mean? SUBSITUTE!
        • What does -2 mean? COMPLEMENTS
      • What does the relationship show? Between the price of one good cmapred to the demand of another.
      • Equation: % change on demand for good B DIVIDED BY %change in price for good A
      • EXAMPLE: if the price of the playstation went up the demand for a  nentendo would increase
  • What doies the relationship show?If you increase the price of a product it will decreasein demand
  • GOVERNMENT: they would distinguish policies and look at income affects for example VAT

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