ch 5 terms Flashcards
define price elasticity of demand
how much price changes impact buying behaviour
what is total revenue
price x quantity sold
what does it mean if price elasticity is INELASTIC
price elasticity less than one
low price, high # sold
few substitutes
what does it mean if price elasticity is ELASTIC
elasticity greater than 1
price and rev move in opposite directions
high price, low # sold
consumption change heavily impacted by price change
many substitutes
midpoint method equation
% change in quantity supplied/
% change in price
multiplied by P average/Q average
define price effect
how price effects demand
define quantity effect
price rise, lowering # of units sold
define income elasticity of demand
how demand is effected by fluctuations in BUYER income
what is cross-price elasticity of demand
measure of how # of one good responds to price change of another
define elasticity of supply
how # supplied responds to price changes
what makes elasticity of supply ELASTIC
price elasticity of supply >1
if quantity supplied responds lots to price changes (cheap toys)
what makes elasticity of supply INELASTIC
of elasticity of supply <1
quantity supplied responds slightly to price changes (beach front property. you can’t make more)
elasticity of supply equation ??
???
what does perfectly inelastic graph look like
vertical
# supplied same regardless of price
what does perfectly elastic graph look like
horizontal
tiny price changes hugely effect # supplied
