Elasticity

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What is price elasticity of supply?
It measures how responsive a quantity supplied is to a change in price.
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What is the formula to find PES?
% change in quantity / % change in supply
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When is PES elastic? (Applies to all measures of elasticity)
PES > 1
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When is PES inelastic? (Applies to all measures of elasticity)
PES < 1
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When is PES unitary? (Applies to all measures of elasticity)
PES = 0
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What is a commodity and how does it relate to PES?
A commodity is a raw material, they're inelastic as you can't make quick changes to the supply of raw materials.
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What factors effect PES?
Spare production capacity, Stocks of finished products and components, The ease and cost of factor substitution/mobility, Time period and production speed
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What is cross price elasticity? (XED)
The relationship between goods.
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Are close compliments and substitutes elastic or inelastic?
Elastic
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Are weak compliments and substitutes elastic or inelastic?
Inelastic
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What's the formula for XED?
% change of demand of A / % change of price for B
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What is income elasticity of demand? (YED)
How demand reacts to a change in income.
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What's a normal good?
As income goes up, demand goes up.
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What's an inferior good?
As income goes up demand goes down.
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What's a luxury good?
All extra income goes on one item.
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What's the formula for YED?
% change of quantity / % change of income (+ = normal good, -=inferior good)
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What is price elasticity of demand? (PED)
Measures the responsiveness of demand after a change in a product's own price.
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How do you work out PED?
% change in quantity / % change in price
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What factors effect PED?
The number of close substitutes, The cost of switching between products, The degree of necessity or whether the good is a luxury, The proportion of a consumer's income allocated to spending on the good, if the good is subject to habitual consumption
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Other cards in this set

Card 2

Front

What is the formula to find PES?

Back

% change in quantity / % change in supply

Card 3

Front

When is PES elastic? (Applies to all measures of elasticity)

Back

Preview of the front of card 3

Card 4

Front

When is PES inelastic? (Applies to all measures of elasticity)

Back

Preview of the front of card 4

Card 5

Front

When is PES unitary? (Applies to all measures of elasticity)

Back

Preview of the front of card 5
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