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Name: _______________________________

IB Economics Study Guide: Chapter 04Keyed to OxfordB!in" Second Edition

Elasticity: Describe the concept here.

Look forward in the chapter and complete this table by listing the varioutypes we study.

Elasticities of Demand Elasticities of Supply

PED

DEF:

Algebraic Expression:

Which variable is on TOP in that expression? ________________

Cause and Eect are ver! i"portant in Elasticit!# $ote that the process al%a!s startsthe base"ent# &in the deno"inator#' T(AT changes) and as a result the $*+E,ATOchanges# 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 66 Above 6 but not

undeined*ndeined o

7ininit!8

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(o% "an! ite"s in the %orld are characteri-ed b! a PED o -ero? _______

(o% "an! ite"s have PED o 7ininit!8? ________

1tud! the 7,evenue 5oxes8 discussion on pages 9;

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

XEDDEF:

Algebraic Expression:

Which variable is on TOP in that expression? ________________

-ED explains the """""""""""""""""""""""""""" between""""""""""""""""""""""""""""".

*ith -ED the sign is the key / unimportant to understandingits implications.

/circle one0

XED VALUE_____________ ___________ _________

____________ ___________ ______________ __________ _________

RELATIONSHIP

YED

DEF:

Algebraic Expression:

Which variable is on TOP in that expression? ________________

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*ith 1ED the sign is important / unimportant to understandiits implications.

/circle one0

YED Summary TableLikely

Sign

Magnitude Notes

Normal GoodsNecessitiesInferior Goods

Engel Curvesshow 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

undeined

*ndeined or 7ininit!8

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

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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&&

%ures.

T'ese T,$ Su&&ly /ures are

b$#' #$#ally elas#i% 0PES 1 !2

T'ese #,$ Su&&ly /ures are

b$#' u(i# elas#i% eery,'ere

0PES 3 !2

T'ese #,$ Su&&ly /ures a

i(elas#i%4 PES 5 ! a# all &$i(#

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Determinants of Price Elasticity of Supply

(ES /optional: example0 (ES /optional: example

&ow much the cost tomake an item increasesas output increases

!ost doesn2t increase: !ost does increase:

!apacity )ll being used already: Lots of unused mfg.capacity:

$obility of 3actors of(roduction

Immobile: $obile:

'ime (eriod !onsidered:long or short%

Long: Short:

'ype of good(rimary !ommodity: $anufactured item:

LAST WORD6

!"#$$$%hy are &eveloping Nations ften #it with Sudden, #uge &rops in %hat th

%orld %ill 'ay for (heir Main 'roducts)))

Explain and support with a graph.