Elasticity HM2413C

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Elasticity HM2413C by Mind Map: Elasticity HM2413C

1. Price Elasticity of Supply is a measure used in economics to show the responsiveness and elasticity of the quantity supplied.

2. Measure responsiveness of quantity semand of a product to a change in the price of product

3. if a consumer wants to travel to another country just because of their habits for example buying perfumes in Paris rather than buying it in their own country, their demand will be inelastic because their habits towards perfume have become necessity to them.

4. 2. share of budget spent on the product.

4.1. definition: if consumer has to spent a large portion of their income or budget on a tourism package, its demand will be elastic. if the consumer has to spent less portion of their income, the demand will turn to be inelastic.

5. Income elasticity of demand measures the relationship between a change in quantity demanded for good X and a change in real income.

6. ) 4.The price elasticity of supply is determined by: 1..Number of producers: ease of entry into the market. 2.Spare capacity: it is easy to increase production if there is a shift in demand. 3.Ease of switching: if production of goods can be varied, supply is more elastic. 4.Ease of storage: when goods can) be stored easily, the elastic response increases demand. Length of production period: quick production responds to a price increase easier. Time period of training: when a firm invests in capital the supply is more elastic in its response to price increases.

7. Elastic demand is when price or other factors have a big effect on the quantity consumers want to buy.  You'll see it most often when consumers respond to price changes. If the price goes down just a little, they'll buy a lot more. If prices rise just a bit, they'll stop buying as much and wait for them to return to normal

8. 1. Technology advancements - the number of output produced in give period of time is lower when old methods of production are used.

9. 4. Nature of market- when products cam be sold in different markets, supply becomes more elastic.

9.1. Relationship between Total Revenue and Elasticity

9.1.1. Elastic Demand

9.1.1.1. Positive sign : demand for one good will increase if the price of the other goods increase.

9.1.2. Inelastic demand in economics is when people buy about the same amount whether the price drops or rises. That happens with things people must have, like gasoline

9.1.3. Inelastic Demand

9.1.4. Unitary Elastic Demand

10. Cross Elasticity of Demand (CED)_ Group 4

10.1. Definition

10.1.1. The ratio of % change in the quantity demanded of a good service to a given % change in the price of a related good

10.1.1.1. % change in quantity of good A demanded / % change in price of good B

11. Cross Elasticity of Demand

12. Interpretation

12.1. If greater than 1.0, elastic If equal to 1.0, unitary elastic If less than 1.0, inelastic

13. Defination

13.1. %change in quantioty supply / % change in price

14. def

15. Determinant

16. Determinant

16.1. 3. Availability and mobility of factors of production - when factors of production such as land, labour and capital are available, supply tends to be more elastic.

16.2. 2. Time dimension - influences the elasticity of supply. In short term, supply tends to be inelastic due to insufficient time to organise and adjust supply to demand.

16.3. 5. Perishability - changes in price do not effect supply because seller cannot store perishable products for long term.

17. Price Elasticity of Demand (PED)_Group 1

17.1. Definition

17.1.1. Measure responsiveness of Quantity Demand of a product to a change in the price of product.

17.2. Degree

17.2.1. 1. Fairly Elastic

17.2.1.1. Demand is said to be fairly elastic when the coefficient is >1. The percentage 🔺 in Quantity Demand is greater than the percentage 🔺 in price

17.2.2. 2. Fairly Inelastic

17.2.2.1. Demand is inelastic if the coefficient is <1. The percentage 🔺 in Quantity Demand is smaller than the percentage 🔺 in price.

17.2.3. 3. Unitary Elastic

17.2.3.1. Demand exist if the coefficient is =1. Percentage 🔺 in Quantity Demand is equal to the percentage 🔺 in price.

17.2.4. 4. Perfectly Elastic

17.2.4.1. Demand is refers to a demand which is super sensitive to a price 🔺. A small percentage 🔺 in price brings about an infinite to percentage 🔺 in Quantity Demand.

17.2.5. 5. Perfectly Inelastic

17.2.5.1. Demand has coefficient of 0. This means that Quantity Demand does not 🔺 as the price 🔺.

17.3. Determinants

17.3.1. 1. Availability of substitutes

17.3.1.1. Demand is elastic, if the product have many substitute and inelastic if it has few substitute. Eg : if the price of a particular brand detergent increases the quantity demanded for it will fall by a larger % bcs there are many other brand of substitute detergents.

17.3.2. 2. Share of budget spent on the product

17.3.2.1. If consumer a large portion of their income or budget on a product its demand will be elastic otherwise the demand will be inelastic.

17.3.3. 3. Types of the product

17.3.3.1. For luxuries, the demand will be elastic, but for necessities or essential the demand will be inelastic.

17.3.4. 4. Habits

17.3.4.1. If the demand for a product is associated with some habit, eg: cigarette with smoking or alcohol drinking habits, their demand will be inelastic bcs these products hve become necessities for them. Therefore, a price increase.

17.3.5. 5. Time

17.3.5.1. In a short period of time, the demand may be inelastic bcs of difficulties in finding substitutes or bcs customers do not hve enough time to make adjustments to a price 🔺.

18. Income Elasticity of Demand (IED)_Group 2

18.1. Types of Ey 1) Normal Good - Ey is positive * An increase in the income would increase the quantity demanded at each price 2) Inferior Good - Ey is negative * An increase in the income would decrease the quantity demanded at each price

19. Price Elasticity Of Supply (PES) Group 3

20. Past Year Question 1_GROUP 5

20.1. for example: if the consumer can buy a flight ticket for a business class so the demand tend to be elastic which means consumers would response significantly to a fall in its price by demanding more of it.

20.2. Define price elasticity of demand.

20.2.1. the responsiveness of quantity demanded of a product to a change in the product's own price .

20.3. Four (4) determinants of price of elasticity of demand for tourism packages.

20.3.1. 1. availability of products.

20.3.1.1. for example: if the price of a particular travel company of travel packages increases, the quantity demanded for it will fall by a larger percentage because there are many other travel company of substitutes travel package.

20.3.2. 3. types of the product.

20.3.3. 4. habits.

21. Past Year Questions 2 _ Group 6

21.1. Jan 2018, Part C, Question 1 (b)

21.1.1. Define income elasticity of demand and how income can be used to classify the type of goods in the market.

21.1.1.1. Ey = percentage change in demand

21.1.1.2. If normal goods, Ey would be positive. And increase in the normal income would be increase the quantity demanded of each price. If inferior goods, Ey would be negative. An increase in the income would decrease the quantity demanded at each price.

21.1.1.3. The percentage change in demand for any goods , holding its price constant, divided by the percentage change in income.

21.2. June 2019

22. Formula for price elasticity of supply

23. Elasticity = % change in quantity/%change in price

24. Economic Theory. Price increase = Supply of good increase. Price decrease = Supply of good decrease

25. VIDEO ON Definition and formula of income elasticity of demand

25.1. Σy= % change in quantity demanded / % change in income

26. -Adib- The price elasticity of supply is determined by: 1.Number of producers: ease of entry into the market. 2.Spare capacity: it is easy to increase production if there is a shift in demand. 3.Ease of switching: if production of goods can be varied, supply is more elastic. 4.Ease of storage: when goods can be stored easily, the elastic response increases demand. 5.Length of production period: quick production responds to a price increase easier. 6.Time period of training: when a firm invests in capital the supply is more elastic in its response to price increases.

26.1. Price Elasticity of Supply = % change in quantity supplied

27. Example question of supply

28. Interpretation of CED

28.1. POSITIVE SIGN ( 1 < eX > 0 )

28.1.1. Demand for one good will increase if the price of the other good increase

28.1.2. Example: Subtitute goods (orange juice & apple juice; beef and lamb)

28.2. NEGATIVE SIGN ( 1 < eX > 0 )

28.2.1. Demand for one good will increase if the price of the other good decrease

28.2.2. Example : Complementary goods (Coffee & skimmed milk entertainment & food)

28.3. eX = 0

28.3.1. Demand for one good is not affected when there is a changes in the price other good

28.3.2. Example: Two goods are not related (Cloths & Bicycle, Cutlery & Air-Conditioner