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25 Cards in this Set
- Front
- Back
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Elasticity |
A measure of responsiveness |
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PED Price Elasticity of Demand |
percentage change in quantity demanded of the product/percentage change in price of product |
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inelastic demand |
The value of PED is less than one and greater than zero |
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Elastic Demand |
The value of PED is greater than one and less than infinity |
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What determines the value of PED for a product? |
Substitutes ( The more substitutes there are for a product the more elastic will be the demand for it. Necessity of the product Time period |
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Government action |
If government puts tax on product, then its price will rise. Quantity demand of the product will fall |
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Cross elasticity of demand (XED) |
percentage change in quantity demanded of product X/Percentage change in price of product Y |
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If XED is positive |
two goods in question may be said to be substitutes for each other. |
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If XED is negative |
Two goods in question may be said to be complements for each other. Products that are very close complements will have |
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Income Elasticity of Demand (YED) |
% change in quantity demanded of product/% change in income of the consumer |
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YED Income has risen by $6,000 from an original income of $60,000 which is a change of +10%. |
(+6,000/60,000) x100=+10% |
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XED: The price of the competitors burgers has fallen by 20 cents from an original price of $2, which is a change of -10%. |
-20/200 x 100=-10% |
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PED: The price has fallen by 50cents from an original price of $5 =, which is a change -10%. |
(-50/500) x100= -10% |
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For normal goods the value of YED |
Is positive. The demand increases as income increases. |
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Necessity goods are products that have |
low income elasticity. The demand for them will change very little if income rises. |
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Superior goods are products that have |
high income elasticity.The demand for them changes significantly if income rises. As people have more income and have satisfied their needs, they begin to purchase products that are wants. |
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Price Elasticity of Supply (PES) (value will almost always be positive) |
%change in quantity supplied of the product/ %change in price of the product |
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PES: The quantity supplied has increased by 30,000 from an original supply of 200,000, which is a change of 15% |
(30 000/200 000)x100= 15% |
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If PES is equal to zero |
then a change in the price of a product will have no effect on the quantity supplied at all |
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In International Trade |
Supply of commodities, such as wheat, available to a country for import is infinite. |
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Inelastic Supply |
The value of PES is greater than zero and less than one. |
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Elastic Supply |
The value of PES is greater than one and less than infinity |
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Unit Elastic Supply |
Value of PES is zero. |
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Commodities |
Raw materials (cotton, coffee) |
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Commodities tend to have |
inelastic supply |
