A-level Economics key content part 5

PED values, examples, pros and cons + their effect

what does it mean if something is relatively price elastic

% change in quantity demanded is larger than % change in price

what does it mean if something is perfectly price elastic

quantity demanded falls to zero if price rises/oversensitive to price changes

factors that affect PED (number of close….)

number of close substitutes

factors that affect PED (costs of …)

costs of switching products

factors that affect PED (degree…)

degree of necessity, whether necessary or luxury

factors that affect PED (proportion of…)

proportion of income you spend

factors that affect PED (time period…)

time period allowed following price change

factors that affect PED (whether product is subject to…)

whether product is subject to habitual consumption e.g. smoking

factors that affect PED (____ and off-_____ demand)

peak and off peak demand (peak hour-elastic)

factors that affect PED (breadth of…)

breadth of definition of a good/service (is product necessity or luxury)

demand during peak/ off-peak times is price elastic or inelastic

inelastic-consumers are willing to pay higher price (limited substitutes)

how is is peak/off-peak used

by business’s to vary prices based on the timing of consumption

what is demand like at off-peak times

more price sensitive

peak times are

inelastic

off-peak times are

elastic

examples of peak times

rail and bus fares

advantages of PED

helps firms to determine prices and change them, assess change in price on revenue

disadvantages of PED

consumer price sensitivity changes overtime, may have inaccurate or incomplete data

what is marginal utility

additions to revenue as a result of an extra unit of output

what is tax

compulsory payments by business’s, consumers/ homes to the government

what is indirect tax

tax on goods and services e.g.VAT which is at 20% currently

what is direct tax

profit or incomes e.g. income and corporation tax

who has more tax burden in price elastic demand

supplier

who has more tax burden in price inelastic demand

consumer e.g. high demand products like cigarettes

what are subsidies

any form of financial aid given to consumers / people to help increase supply and decrease price e.g. NHS

how does supply shift when it comes to PED and subsidies

shifts downwards

what affect does inelastic market demand have

subsidy has a larger effect on price

what is income elasticity

how responsive price is due to income

why is PED important for business’s

determines how much to charge for a product

what does PED assist governments in

deciding which subsidies to give, decrease spending by increasing tax