Chapter 6 - Elasticities: Extension of demand and supply analysis Flashcards
Price elasticity of demand
The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price
A measure of the responsiveness of buyers to a change in the price of a product or resource
Arc Elasticity formula
A method for calculating price elasticity or demand or price elasticity of supply that averages the two prices and tow quantities a the reference points for computing percentages
Elastic demand
Product or resource demand for which the elasticity coefficient for price is greater than 1 meaning the resulting change in quantity demanded is greater than the percentage change in price
Inelastic demand
Procut or resource demand for which the elasticity coefficient for price is less than 1 meaning the resulting percentage change in quantity demanded is less then the percentage change in price
Unit elasticity
Demand or supply for which the elasticity coefficient is equal to 1 meaning that the percentage change in the quantity demanded or supplied is equal to the percentage change in price
Perfectly inelastic demand
Product or resource demand in which price can be any amount at a particular quantity of the product or resource demanded, quantity demanded does not respond to a change in price
Graphs as a vertical demand curve
Perfectly elastic demand
Procut or resources demand in which quantity demanded can be of any amount at a particular product price
Graphs as a horizontal demand curve
Total revenue
The total number of rands received by a firm from the sale of a product, equal to the total expenditures for the product produced by the firm, equal to the quantity sold multiplied by the price at which it is sold
Total revenue test
A test to determine elasticity of demand between any two prices
Demand is elastic if total revenue moves in the opposite direction from price
Demand is inelastic when it moves in the same direction as price
Demand is of unitary elasticity when it does not change when price changes
Price elasticity of supply
The ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price
A measure of the responsiveness of producers to a change in the price of a product
Market period
A period in which producers of a product are unable the change the quantity produced in response to a change in its price and in which there is a perfectly in elastic supply
Short run
Microeconomics- a period of time in which producers are able to change the quantities of some but not all of the resources they employ
Macroeconomics-a period in which nominal wages and other input prices do not change in response to a change in the price level
Long run
Microeconomics-a period of time long enough to enable producers of a product to change the quantities of all the resources they employ, a period in which all resources and costs are variable and no resources are fixed
Microeconomics-a period sufficiently long for nominal wages and other input prices to change in response to change in the nation price level
Cross-elasticity of demand
The ratio of the percentage change in quantity demanded of one good to the percentage change in the price of some other good.
A positive coefficient indicates the the two products are substitute goods
A negative coefficient indicates they are complementary goods
Income elasticity of demand
