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Cards (33)
What does PES measure?
Responsiveness of
quantity supplied
to
price
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What is the formula for PES?
PES =
%ΔQS
/
%ΔP
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What does a PES value of 0 indicate?
Perfectly inelastic supply
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What does a PES value of ∞ indicate?
Perfectly elastic supply
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What factors influence PES?
Mobility of factors of production
Rate of cost increase
Ability
to
store
goods
Spare
capacity
Time
period
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What does YED measure?
Responsiveness of quantity demanded to income
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What is the formula for YED?
YED = %ΔQD /
%ΔY
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What characterizes a luxury good in terms of YED?
YED > 0, demand increases with income
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What characterizes an inferior good in terms of YED?
YED < 0, demand falls as income rises
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What characterizes a normal good in terms of YED?
YED > 0, demand increases with
income
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What does XED measure?
Responsiveness of
quantity demanded
for good A to
price of good B
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What is the formula for XED?
XED =
%ΔQDA
/
%ΔPB
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What does XED < 0 indicate?
Complementary goods
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What does XED > 0 indicate?
Substitute
goods
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What does XED = 0 indicate?
Unrelated
goods
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What is market equilibrium?
Prices
determined by demand and supply interaction
Occurs when
quantity demanded
equals
quantity supplied
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What happens during excess demand?
Price increases, generating more revenue
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What does PED measure?
Responsiveness of
quantity demanded
to
price changes
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What is the formula for PED?
PED =
%ΔQD
/
%ΔP
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What factors influence PED?
Substitutability
Percentage of income
Necessities vs. luxuries
Time
Addictiveness
Peak/off-peak demand
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What factors shift demand?
Population
Income
Related
goods
(
substitutes
and
complements
)
Advertising
Taste/fashion
Expectations
Season
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What factors shift supply?
Productivity
Indirect tax
Number
of
firms
Technology
Subsidies
Weather
Cost of production
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What does an outward shift in the supply curve indicate?
Increase in supply
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What does an inward shift in the supply curve indicate?
Decrease in supply
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What does the law of diminishing returns state?
Opportunity cost
increases when producing more
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What indicates economic growth?
Outward shift of the
production possibilities frontier
Increase in
quantity/quality
of resources
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What indicates economic decline?
Inward
shift of the production possibilities frontier
Decrease
in
quantity
/
quality
of resources
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What is productive efficiency?
All resources used to
productive
potential
Points on the
boundary
of the production possibilities frontier
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What is allocative efficiency?
No one can be made better off without making someone worse off
Optimal
use of
scarce
resources
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What are close substitutes in cross price elasticity?
Small
price
increase
of Y causes
large
rise
in demand for X
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What are weak substitutes in cross price elasticity?
Large
price
increase
of Y leads to
small
increase
in demand for X
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What are close complements in cross price elasticity?
Small
fall
in price of A causes
large
rise
in demand for B
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What are weak complements in cross price elasticity?
Large
drop
in price of A causes
small
rise
in demand for B
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