9609 · 8.1.1
Elasticity flashcards
Revision flashcards for Cambridge 9609 Elasticity (syllabus 8.1.1). Flip, recall, then mark a real past-paper question.
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PED formula?
% Δ quantity demanded ÷ % Δ price.
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Elastic demand?
|PED| > 1 — quantity changes more than proportionately to price.
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Inelastic demand?
|PED| < 1 — quantity changes less than price.
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Price rise + elastic?
Total revenue falls — lost volume outweighs higher price.
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Price rise + inelastic?
Total revenue rises — volume drop is small.
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YED positive?
Normal good — demand rises as income rises.
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XED positive?
Substitutes — rival's price rise boosts your demand.
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PED determinants?
Substitutes, necessity, % of income, time period.
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What is the formula for Price Elasticity of Demand (PED)?
PED = Percentage Change in Quantity Demanded / Percentage Change in Price.
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If a product has a YED of -0.6, what type of good is it and what does this mean?
It is an 'inferior good'. This means that as consumer income rises, the quantity demanded for this product will fall.
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Two products have an XED of +1.8. What is their relationship?
They are strong substitutes. A price increase in one product will lead to a significant increase in the quantity demanded of the other.
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What is the relationship between PED and total revenue for a product with inelastic demand?
For a product with inelastic demand (PED < 1), an increase in price will lead to an increase in total revenue, as the fall in quantity demanded is proportionally smaller than the rise in price.
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Name two factors that would make the demand for a product more price elastic.
1. The availability of many close substitutes. 2. The product represents a large proportion of a consumer's income. (Other valid answers: it is a luxury, not a necessity; a longer time period is considered).