Chapter Five Elasticity Of Demand Flashcards
What happens when the elasticity of demand is elastic
The quantity demanded response significantly to a change in price
What does it mean when the elasticity of demand is inelastic
The quantity demanded response only slightly to changes in price
What influences the elasticity of demand
- Time horizon
- Definition of the market
- Necessity versus luxury
- Availability of close substitutes
How does the definition of the market impact the elasticity of demand
It depends on how we draw the boundaries of the market we can have
- Nearly defined markets or
- Broadly defined markets
How does nearly defined markets affect elasticity of demand
They usually have more elastic demand
- because they’re easier to find close substitutes for narrowly defined goods i.e. ice cream
What would be an example of a broadly defined market
I.e. food
Vanilla ice cream
How elastic would the demand for a necessity be
Tends to have an inelastic demand
How elastic of the demand what a luxury item be
It tends to be elastic greater than one
How does the availability of close substitutes affect elasticity of demand
If they’re close substitutes they tend to have more elastic demand because it is easier for consumers to switch from one good to others
What is price elasticity of demand
It measures how much the quantity demanded response to a change in price
