Chapter 3: Elasticities (Microeconomics) Flashcards
1
Q
Price elasticity of demand (PED)
A
A measure of the responsiveness of demand to a change in price.
2
Q
PED =
A
% change Qd / % change P
3
Q
Price inelastic is when…
A
0
4
Q
Price elastic is when…
A
1
5
Q
Factors affecting PED:
A
- Time
- Proportion of income spent on good (Strength of Income effect)
- Availability of substitutes (Strength of substitution effect)
6
Q
Perfectly inelastic
A
Vertical line, no relationship between P and Q whatsoever.
No matter what the price is, Quantity will never change.
7
Q
Perfectly elastic
A
Horizontal line, no relationship between P and Q whatsoever.
Same price, unlimited (infinite) demand - either have all the demand or none of it.
