The responsiveness of demand/supply to a change in price.
12 of 25
What does elastic/inelastic mean?
Elastic= more than proportional change in demand/supply. Inelastic= less than proportional change in demand/supply
13 of 25
How do you calculate PED/PES?
(%change in demand/supply) divided by (%change in price)
14 of 25
How does the demand/supply curve look if demand/supply is elastic/inelastic?
Inelastic= steep. Elastic= flat.
15 of 25
What affects PED?
Number of substitutes, degree of necessity, proportion of income.
16 of 25
What affects PES?
Stock levels, production speed, spare capacity.
17 of 25
What is income elasticity of demand?
The responsiveness of demand to changes in income.
18 of 25
How is IED calculated?
(%change in demand) divided by (%change in income)
19 of 25
What does PED/PES/IED mean?
Greater than 1 or less than -1= elastic. Between 1 and -1- inelastic.
20 of 25
What is perfectly elastic demand/supply?
PED/PES= infinity. Curve is vertical. Infinite amount demanded/supplied at current price but none at any other price level.
21 of 25
What is perfectly inelastic demand/supply?
PED/PES= 0. Curve is horizontal. The same amount is demanded/supplied at every price level.
22 of 25
What are the applications of elasticity?
Firms want to know the effect of price changes of total revenue. (explain). Firms with flexible resources can switch to other goods. Govs impose taxes on inelastic goods (consumers cannot avoid buying them)- target necessities or those with few subs.
23 of 25
Regarding IED, what is the difference between a normal and an inferior good?
Normal= IED positive. As income rises, demand will rise. Inferior= IED negative. As income rises, demand will fall.
24 of 25
What does 'PED is unity' mean?
Price changes cause an exactly proportional change in demand. This will leave total revenue unaffected.
Comments
No comments have yet been made