Name: _________________________________

IB Economics Study Guide: Chapter 04

Keyed to Oxford B!in" Second Edition Elasticity: Describe the concept here.

Look forward in the chapter and complete this table by listing the various types we study. Elasticities of Demand Elasticities of Supply

PED
DEF: Algebraic Expression: Which variable is on TOP in that expression? ________________ Cause and E ect are ver! i"portant in Elasticit!# $ote that the process al%a!s starts in the base"ent# &in the deno"inator#' T(AT changes) and as a result the $*+E,ATO, changes# The relative si-e o the t%o changes is Elasticit!#

,A$.E o /A0*E1 o PED: Dra% a 2uic3 graph o each case#

4ero 5et%een 4ero and 6 6 Above 6 but not unde ined *nde ined or 7in init!8

(o% "an! ite"s in the %orld are characteri-ed b! a PED o -ero? _______ (o% "an! ite"s have PED o 7in init!8? ________ 1tud! the 7,evenue 5oxes8 discussion on pages 9:;<=# Then co"plete the table b! na"ing the portion o the de"and curve this retailer "ust be in &Price elastic) Price inelastic) or price unit elastic' +! Total ,evenue +! Total +! Total ,evenue ,ose ,evenue didn>t Fell change ? raised "! price ? lo%ered "! price

If a firm has inelastic demand for its product, and it wants more revenue, it should ____________________________ the price it charges. Determinants of Price Elasticity of Demand
Example of Elastic Demand umber and !loseness of #ig $acs """"""""""""""""""""""" "" ecessity or luxury% Insulin Example of Inelastic Demand

&ow widely product is defined

'ime (eriod !onsidered: long or short% (ercentage of income the item price represents ) pack of gum

EVAL:

*hat Items Should +overnment (ut a 'ax ,n% Explain using the concept of (rice Elasticity of Demand.

XED
DEF: Algebraic Expression: Which variable is on TOP in that expression? ________________
-ED explains the """""""""""""""""""""""""""" """"""""""""""""""""""""""""". between

*ith -ED. the sign is

the key / unimportant its implications.

to understanding

/circle one0
XED VALUE _____________ ___________ _________

____________ RELATIONSHIP

___________

______________

__________

__________

YED
DEF: Algebraic Expression: Which variable is on TOP in that expression? ________________

*ith 1ED. the sign is

important / unimportant its implications.

to understanding

/circle one0

YED Summary Table

Likely Sign Normal Goods Necessities Inferior Goods Magnitude Notes

Engel Curves show that YED can change over ___________________ as a good
goes from being perceived as a __________________ good to an__________________ good, due to increasing standards of living.

PES --- the only one involving Supplier behavior

DEF: Algebraic Expression: Which variable is on TOP in that expression? ________________

,A$.E o /A0*E1 o PE1: Dra% a 2uic3 graph o each case#

4ero 5et%een 4ero and unde ined *nde ined or 7in init!8

Ti"e Period Considered and PE1: Dra% a 2uic3 graph o each#

Toda! &?""ediate'

A short period o ti"e

The 0ong ,un

For global commodities like wheat, you can sort of get as much as you want at the world market price. Draw that situation and describe the apparent PES.

PES IS WEIRD .
Use figure .!" #$ %$m&le#e #'is #able. I( ea%' b$)* +ra, $(e )-y a)is a(+ #,$ +iffere(# su&&ly %ur.es. T'ese T,$ Su&&ly /ur.es are b$#' #$#ally elas#i% 0PES 1 !2 T'ese #,$ Su&&ly /ur.es are b$#' u(i# elas#i% e.ery,'ere 0PES 3 !2 T'ese #,$ Su&&ly /ur.es are i(elas#i%4 PES 5 ! a# all &$i(#s.

Determinants of Price Elasticity of Supply

&ow much the cost to make an item increases as output increases !apacity (ES /optional: example0 !ost doesn2t increase: (ES /optional: example0 !ost does increase:

)ll being used already:

Lots of unused mfg. capacity:

Immobile: $obility of 3actors of (roduction Long: 'ime (eriod !onsidered: long or short% (rimary !ommodity: 'ype of good

$obile:

Short:

$anufactured item:

LAST WORD6
%hy are &eveloping Nations ften #it with Sudden, #uge &rops in %hat the %orld %ill 'ay for (heir Main 'roducts)))
Explain and support with a graph.

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