Economics SL > Elasticities > Flashcards

Elasticities Flashcards

(41 cards)

Study These Flashcards
1
Q

Primary Commodity

A

products that are extracted from nature and sold as they are (oil, wheat)

they are part of the primary sector.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Secondary Commodity

A

products that are processed or manufactured to add value (cars, pencils)

part of the secondary sector

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Price Elasticity of Demand

A

responsiveness of quantity demanded to price change

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Formula of PED

A

Percentage change in Qd / Percentage change in Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

PED is always negative because

A

there is a negative causal relationship between Price and Qd

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

PED range for an inelastic good

A

0<PED<1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

PED range for an elastic good

A

1<PED<∞

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Special cases of PED

A
  1. Perfectly Elastic Demand
  2. Perfectly Inelastic Demand
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Visual representation of perfectly elastic demand

A

straight horizontal line & PED=∞ at any point of the line

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Visual representation of perfectly inelastic demand

A

straight vertical line & PED=0 at any point of the line

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Unitary Elastic Demand

A
  1. Total revenue stays the same
  2. Change in price is proportional to change in Qd
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Visual representation of unitary elastic demand

A

Curved line (inwards)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Varying Elastic Demand

A
  1. Upmost part of line -> perfectly elastic (PED=∞)
  2. Upper part of line -> elastic ( 1<PED<∞)
  3. Midpoint -> Unitary Elastic (PED=1)
  4. Lower part of line -> inelastic (0<PED<1)
  5. Lowest part of line perfectly inelastic (PED=0)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

4 Determinants of PED

A
  1. Number and Closeness of Substitutes
  2. Necessity or Luxury?
  3. Length of time
  4. Proportion of income spent on good
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Who uses PED?

A

Governments and firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

To decrease consumption, governments tax ___

A

elastic goods since Qd decreases the most

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

To increase tax revenue, governments tax ___

Study These Flashcards
A

inelastic goods since Qd decreases slightly

18
Q

To increase consumption, governments subsidise ___

Study These Flashcards
A

elastic goods

19
Q

To minimise government expenditure, governments subsidise ___

Study These Flashcards
A

inelastic goods

20
Q

To find government expenditure for a subsidy in a graph

Study These Flashcards
A

trace line from new equilibrium up to the old supply graph

21
Q

How do firms use PED?

Study These Flashcards
A

They use it to maximise revenue by attempting to reach the midpoint in the demand graph where there is unitary elasticity and PED=1

22
Q

What should firms do to the price of an inelastic good?

Study These Flashcards
A

Increase until midpoint is reached and revenue is at its max

23
Q

What should firms do to the price of an elastic good?

Study These Flashcards
A

Decrease the price until the midpoint is reached and revenue is at its max

24
Q

Why are primary commodities subsidised more?

Study These Flashcards
A
  1. Higher price volatility (large change in price when supply curve shifts)
  2. Revenue is less secure
25
Why are secondary commodities subsidised less?
1. Lower price volatility 2. Revenue is secure
26
What is YED?
Responsiveness of Quantity demanded to changes in income
27
When is YED positive?
For a normal good
28
What are the two types of normal goods that have positive YED?
1. Necessities -> Inelastic 0 Elastic 1
29
When is YED negative?
For an inferior good 0
30
What are the axes of an engel curve
Y axis: Income X axis: Quantity
31
If line starts from center of an engel curve
YED is 1, unitary eleastic
32
If line starts from Income axis in an engel curve
1
33
If line starts from Quantity axis in an engel curve
0
34
If line is downward sloping in an engel curve
0>YED>-∞, inferior good
35
Who can apply PED?
1. Producers 2. Governments
36
How do Producers apply YED
If a producer sells an inferior good during a recession (Y is going down), revenues will rise If a producer sells a normal good during a recession (Y is going down), revenues will fall
37
How do Governments apply YED to sectoral changes
When an economy grows and national income rises, the three sectors grow at different scales: 1. Tertiary Sector (YED is most elastic) will grow the most 2. Secondary Sector (YED is elastic) will grow the second most 3. Primary Sector (YED is inelastic) will grow the least
38
Price Elasticity of Supply
responsiveness of quantity supplied to price changes
39
Why is PES always positive
Due to the causal positive relationship between price and Qs
40
5 Determinants of PES
1. Time needed to increase production of a product 2. Mobility of FoP 3. Spare Capacity of FoP in firms 4. Storability 5. Rate at which costs increase compared to price increases
41
Why is PES less elastic in the short run?
producers cannot instantly increase production after a change in price
Economics SL
flashcards
Decks in class (7)
# Cards
Brainscape helps you reach your goals faster, through stronger study habits.
© 2026 Bold Learning Solutions. Terms and Conditions