Econ Module 1 Flashcards
Willingness to Pay (WTP)
The highest price a consumer is willing to pay for a product or service. One can think of it as the price at which the consumer is just indifferent between purchasing the product and not purchasing it.
Demand Curve, Individual
A graphical representation of a buyer’s willingness to pay for various quantities of a product or service (price on Y-axis, quantity on X-axis).
Demand Curve, Market
A graphical representation of the willingness to pay of all buyers for various quantities of a product or service. The market demand curve is the horizontal sum of each individual’s demand curve at a given price.
Elasticity
A measure of the responsiveness in one variable to a change in another variable. Mathematically, it is the percentage change in one variable, divided by the percentage change in another variable; for more details, see price elasticity of demand. Elasticity does not depend on the units in which variables are measured (unlike the concept of slope).
Price Elasticity of Demand (PED)
A measure of how responsive customer demand for a product or service is to a change in price. Mathematically, it’s calculated as the absolute value of the percentage change in quantity demanded for product X, divided by the absolute value of the percentage change in price in product X.
Income Elasticity of Demand (IED)
A measure of the responsiveness of demand for a product or service to a change in consumers’ incomes. Mathematically, it’s calculated as the percentage change in quantity demanded for a product or service, divided by the percentage change in consumer income.
