Chpt 3 Flashcards
what is price elasticity demand?
the responsiveness of quantity demanded to a change in the price of the good or service
How to calculate how large the fall of quantity demanded will be compared to increase/ decrease in price?
Compare the percentage change in price with the percentage change in quantity ex 30/1000 is 3% change 20 is the change amount and 1000 is the originial price
what is the formula to calculate the price elasticity of demand?
percentage change in quantity over
percentage change in price
What is an inelastic good?
Percentage change in quantity os less than the percentage change in price, the answer will be less than one and this indicates that demand is inelastic good ex coffe or heroin
what is elasticity coefficient
the per cent change in the price of coffe will lead to a .3 per cent change in quantity demanded. when the value is less than 1 it means the law of demand is weak
if the price changes by 1% and the quantity demanded changes by 2% what does this mean ?
the good is relatively elastic, the law of demand is relatively stron 2<1 = elastice good
what does price elasticity of demand measure?
the responsiveness of quantity demanded to a change in price.
meaning of perfectly inelastic
Ed=0 quantity demanded does not change- the D curve is vertical, Goods with no subs ex heroin
meaning of inelastic
Ed<1 Quantity demanded does not decrease by less than 1%- relatively steep demand curve, goods with few close subs ex Maruijana
meaning of unitary elastic
Ed= 1 Quantity demanded decreases by exactly 1 % - equally proportional Demand curve
meaning of elastic
Ed>1 quantity demanded decreases by more than 1%- relatively flat D curve, goods with many close subs ex milk
meaning of perfectly elastic
quantity demanded decreases to zero- horizontal D curve
when Demand is elastic what will happen?
Price and total revenue move in opposite directions ex a rise in Price decreases total revenue, while a fall in price increases revenue.
when demand is inelastic what will happen?
Price and total revenue move in the same direction ex a rise in price increase total revenue, while a fall in price decreases total revenue
When demand is unitary elastic what happens?
A change in price does not change Total revenue
Determinate’s affecting price elasticity of demand??
The availability of substitutes, whether the good is a necessity or a luxury, the proportion of income spent
what us the availability of substitues?
The greater the number of close substitutes a good has, the more price elastic its demand.
What is the definition of the market
the demand for a good in a broadly defined market will be more inelastic than the demand for a good in a narrowly defined market
What is the proportion of income spent?
Expensive goods are likely to be relatively price elastic because they take up a larger proportion of a consumers income or budget.
how does time effect the P elasticity of demand
if consumers have time to respond to a priuce change , then demand will be more price elastic
what is price elasticity of supply?
measures the responsiveness of quantity supplied to a change in price
what are the determinates affecting supply
nature of industry, ability to store inventories,
