Chapter 3 Vocab Flashcards
Price Elasticity of Demand
A measure of the responsiveness of the quantity demanded to changes in its price.
Price Inelastic Demand
Relatively low responsiveness of the quantity demanded to changes in price(0
Price elastic demand
Relatively high responsiveness of the quantity demanded to changes in price(1
Unitary PED/Unit Elasctic
When there is a unit elastic demand curve, or when the percentage change in price is equal to the percent change in quantity demanded(PED=1).
Perfectly Inelastic Demand
When there is no change in the quantity demanded of a good regardless of the change in price(PED=0).
Perfectly Elastic Demand
When there is an infinitely large responsiveness by any change in price, meaning that any change in price would infinitely increase or decrease the demand of the good(PED=infinity).
Necessities
Goods that are essential or necessary in our lives, they have an inelastic PED and in income inelastic PED.
Luxuries
Goods that are not necessary, they have an elastic PED and in income elastic PED
Substitutes
The more substitutes/close substitutes a good has, the more elastic the demand of the good.
Length of Time (PED)
The more time a consumer has to make a purchasing decision, the more elastic the demand of the good.
Proportion of Income
The higher the proportion one’s income that is spent on the good, the more elastic the demand of the product
Total Revenue
The amount of money received by firms when they sell a good; it is equal to the price of the good times the quantity of the good sold.
Primary Commodities
Goods arising directly from the use of natural resources or the factor of production ‘land’.
Manufactured Products
Goods produced by labor usually working together with capital as well as raw materials.
Income Elasticity of Demand (YED)
A measure of the responsiveness of demand to changes in income and involves demand curve shifts.
YED =
(%ΔQd)/(%ΔY)
PED =
(%ΔQd)/(%ΔP)
PES =
(%ΔQs)/(%ΔP)
Income Inelastic Demand
When the percentage increase in income produces a smaller percentage increase in Qd. Necessities are income inelastic goods.(YED<1)
Income Elastic Demand
When the percentage increase in income produces a larger percentage increase in Qd. Luxuries are income elastic goods. (YED>1)
Engle Curve
A graph with the income on the y axis and quantity on the x-axis that; used to show the YED at different incomes.
Price Elasticity of Supply (PES)
A measure of the responsiveness of the quantity of a good supplied to changes in its price.
Price Elastic Supply
When the percentage change in the quantity supplied of a product is greater than the percent change in the price of the product(PES>1).
Price Inelastic Supply
When the percentage change in the quantity supplied of the product is smaller than the percentage change in the price(PES<1).
Unitary PES/ Unit Elastic Supply
When the percentage change in the quantity supplied of a product is equal to the percentage change in the price of the product.
Perfectly Inelastic Supply
When there is no change in the quantity supplied of a good regardless of what happens to price(PES=0).
Perfectly Elastic Supply
When the percentage change in the quantity supplied is infinite(PES=infinity)
Length of Time (PES)
The more time a firm has to react to a change in price, the more elastic the supply of the product.
Mobility of the FOP
The easier it is to shift the factors of production, the greater the elasticity of the supply of the product.
Spare Capacity of Firms
The greater the spare capacity of firms, the more elastic the supply.
Ability to Store Stocks
Firms that have an ability to store stocks are likely to have a higher PES for their products.
Rate at which costs increase
If the costs of producing extra output increases rapidly, then the supply will be inelastic.
