8.1: Elasticity Flashcards
Demand function is a relationship that expresses…
The quantity demanded of a good or service as a function of own-price and possibly other variables.
Demand function notation formula:
Qdx = f(Px,I,Py)
The slope of the demand curve is measured as the change…
In price, P, divided by the change in quantity, Q (∆P/∆Q, where ∆ stands for “the change in”).
Elasticity is the percentage change in one variable for…
A percentage change in another variable; a general measure of how sensitive one variable is to a change in the value of another variable.
Elasticity formula:
%∆y / %∆x
Own-price elasticity of demand is the percentage change in…
Quantity demanded for a percentage change in good’s own price, holding all other things constant.
Own-price elasticity of demand formula:
Edpx = %ΔQdx / %ΔPx
Income elasticity of demand is the percentage change in…
Quantity demanded (%ΔQdx) divided by the percentage change in income (%∆I),
Income elasticity of demand formula:
EdI = %ΔQdx / %ΔI
Cross-price elasticity of demand is the percentage change…
In quantity demanded for a given percentage change in the price of another good.
Cross-price elasticity of demand formula:
Edpy = %ΔQdx / %Δpy
Real income is income adjusted for…
The effect of inflation on the purchasing power of money.
*Also known as the purchasing power of income.
Giffen goods are goods that are consumed…
More as the price of the good rises because it is a very inferior good whose income effect overwhelms its substitution effect when price changes.
Veblen goods are goods that…
Increase in desirability with increasing price.
The total cost of production (TC) is the number of…
Hours of labor multiplied by the wage rate plus the number of machine hours multiplied by the rental rate of machines:
