Ch 4: Elasticity Flashcards
elasticity
scale in which buyers and sellers re calibrate to the change in price or income
price elasticity of demand
scale of how quantity demand responds to change in price
immediate run
low elasticity because consumer/producers no time to properly adapt to market conditions p115
short run
short term to adapt to market condition. focuses on immediate wants/needs
long run
gives consumer/ producers time to properly adapt to market conditions that benefit them in the long run. more time, more elasticity
total revenue
The amount of money the producer recieves in the sale of goods. Quantity of good X Price of good = Total revenue p120
income elasticity of demand
gives a calculation on how income change can influence spending
cross-price elasticity of demand
a calculation on the elasticity of quantity demanded of 1 unity of good influenced by the price of a related good (substitute or complement good)
price elasticity of supply
a calculation of how producers change quantity supplied based on change in price. p137
5 things that influence Elasticity of demand?
1: existance of subsititutes
2: the share of the budget of goods (price to budget ratio)
3: Is the good a luxury or necessity
4: How broadly defined the market is (brands)
5: Time
Relationships between Price elasticity of demand and price
ED=0 Perfect inelastic;price not important
0> ED > -1 Relatively inelastic
ED = 1 Unitary
-1 > ED > -infinity Relatively elastic
ED –> -infinity Price Perfect elasticity matters the most.
Income elasticity Coefficient
EI < 0 inferior good
0 < EI <1 normal good (necessity)
EI > 1 normal good (luxury)
Cross Price Elasticity Coefficient
EC > 0 Substitute good (brands)
EC=0 No relationship
EC < 0 Complement good (Pb and bread)
Price Elasticity of Supply Coefficient
ES = 0 Perfect inelastic
0< ES < 1 Relative inelastic
ES > 1 Relative elastic
