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42 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Define PED
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The responsiveness of demand to change in price: %change in quantity demanded/%change in price |
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Define Elastic Demand and explain what will happen to revenue when there is an increase in price |
When a change in price leads to a greater percentage than quantity demanded. Demand is very responsive. The answer will be greater than 1. So when price increases, revenue goes down and when price increases revenue goes up |
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Define Inelastic Demand and explain what will happen to revenue when there is a change in price
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Inelastic demand is when any change in price leads to smaller percentage change in quantity demanded. Demand isn’t very responsive to a change in price. An Increase in price will cause revenue to go up while a decrease in price will cause revenue to go down. |
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Define Unitary Elasticity of Demand and explain what will happen to revenue when there is a change in price. What does it look like on a diagram? |
Unitary elasticity is when the percentage change in quantity demanded will equal the percentage change in price. This means that a change in price will not affect the revenue. |
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What are examples of goods with Inelastic supply? |
Commodities(oil diamonds) Skilled Labour Construction (Housing) |
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What do perfectly elastic and inelastic supply look like on a diagram? |
Back (Definition) |
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What does relatively elastic supply look like on a diagram? |
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Goes through y-axis |
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What does relatively inelastic supply look like on a diagram? |
Back (Definition) |
Goes through x-axis |
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What does unitary elastic supply look like on a diagram? |
Back (Definition) |
Goes through the origin |
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What happens to the Elasticity of supply over time? |
Supply becomes more elastic over time because adjustments can be made to the factors of production |
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What is income elasticity of demand? |
Income elasticity of demand is the responsiveness of demand to a change in income. It classifies whether a good is normal or inferior. |
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What is the formula of YED? |
%change in quantity demanded/%change in income |
Q before you P |
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What is the formula for PES? |
%change in quantity supplied/%change in price |
Q before you P |
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Define Perfectly Elastic Demand and what does the graph look like? |
Price elasticity is infinite meaning that purchasers will not buy any products above a certain price |
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Define a Normal Good |
A normal good has positive income elasticity of demand. This is because as income rises, so do demand for normal goods. If the value is less than one, then the good is classed as a necessity. If it is higher than one then the good is a luxury. |
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What does the graph for a normal good look like? Does it go through the origin? |
Back (Definition) |
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Define an inferior good? |
Inferior goods have negative income elasticity of demand. When people’s income rise, the demand for these goods fall. |
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Define Cross Elasticity of Demand |
This is the responsiveness of demand for one product to a change in price of another product |
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What is the formula for XED? |
%change in quantity demanded for Good A/%change in price for Good B |
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What does XED tell you about demand? |
If the value is positive, then products are substitutes. As the price increases for one of the goods, the demand for the other good will increase. If the value is negative, then the products are complements. As the price increases for one of the goods, the demand for the other falls. If products are unrelated, their XED will be zero. |
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Define direct taxes and give an example |
A tax on an individual or organisation. E.G. income tax or corporation tax |
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Define an indirect tax |
An tax on expenditure. It can either be specific or Ad Valorem |
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What is a specific tax? |
Type of indirect tax where the amount charged is fixed per unit. E.g. Excise duties of £5!034 packet on cigarettes |
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Define Ad Valorem Tax |
An indirect tax where the amount charged is a % of the price. E.g. VAT at 20% of the final price. |
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What is tax incidence and what kind of tax is calculated for and why? |
This refers to who pays for the tax, and how much of it they are paying for. It is only calculated for indirect taxes because direct taxes will go directly to the consumer. |
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What is deadweight/welfare loss and how is it related to taxes? |
When taxes are set, there is a portion of consumer and producer surplus that does not transfer to the government. This shows a loss in economic welfare. |
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On this diagram, detail the Total tax revenue, deadweight loss, and tax incidence |
Total Tax Revenue:£50 Consumer Incidence:£40 Producer Incidence: £10 Deadweight:£5 |
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On this diagram, detail the Total tax revenue, deadweight loss, and tax incidence |
Total tax Revenue:P2ACP3 Consumer Incidence:P2ABP1 Producer Incidence:BP1CP3 Deadweight Loss:AEC |
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If there is perfectly elastic supply, what is the incidence of a Specific Tax? Is there deadweight loss? |
Incidence wholly on consumer. Deadweight loss ABC |
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If there is perfectly inelastic supply, what is the incidence of a Specific Tax? Is there deadweight loss? |
No deadweight loss |
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If there is perfectly inelastic demand, what is the incidence of a Specific Tax? Is there deadweight loss? |
No deadweight loss |
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If there is perfectly elastic demand, what is the incidence of a Specific Tax? Is there deadweight loss? |
Deadweight loss ABC |
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On this diagram, detail the Total Subsidy, deadweight loss, and Subsidy incidence |
Total Subsidy: £80 Consumer Incidence:£32 Producer Incidence:£48 Deadweight Loss: ABC (taken from tax payers to pay subsidy) |
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Explain the relationship between elasticity and different points on the demand curve. |
Elasticity varies along a straight line demand curve. No points have the same elasticity. |
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What are the factors that affect the price elasticity of Demand? |
Necessity- if so, more elastic Addictive - if so, more elastic Substitutes?, if it can be replaced, more inelastic Time, over time goods become more inelastic % of Income, smaller % of income, more elastic Quality of Product, better quality, more elastic Brand Loyalty, if so, more elastic |
NASTI QB |
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How do the Elastic and Inelastic demand curves differ?
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Elastic demand curves are shallow while Inelastic curves are steep. |
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Define Price Elasticity of supply |
Measures the responsiveness of quantity supplied to a change in price. (How easily can we create more of something) %change in quantity supplied/%change in price |
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What are the factors effecting Price Elasticity of Supply in the short run? |
Factor Mobility Inventory (how much is in stock) Length of Production Time Skills (Available in economy e.g. people can’t just be doctors) Spare Capacity |
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What are the Factors affecting Price Elasticity of Supply in the long run? |
Technology Education Migration |
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What are examples are there of goods with elastic supply? |
Manufactured Goods Digital Downloads Unskilled Labour |
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Define Perfectly Inelastic Demand and what does the graph look like? |
When PED is zero. The same amount is demanded whatever the price. |
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How might XED be useful to a firm? |
If you know your approximate cross-price elasticity, you can calculate the impact on your own sales when you hear of a price change by a competitor (substitute) or a complimentary good. Therefore you can decide whether you need to change your price (if a rival has cut theirs, for example, you may wish to follow suit. |
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