EKN Chapter 6 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.
Midpoint or arc elasticity formula
A method for calculating price elasticity of demand or price elasticity of supply that averages the two prices and two quantities as the reference points for computing percentages.
Elastic demand
A product or resource demand whose price elasticity is greater than 1. This means the resulting change in quantity demanded is greater than the percentage change in price.
Inelastic demand
Product or resource demand for which the elasticity coefficient for price is less than 1. This means that resulting percentage change in quantity demanded is less than the percentage change in price.
Unit elasticity
Demand or supply for which the elasticity coefficient is equal to 1; means 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 of which price can be of 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
Product or resource demand in which quantity demanded can be of any amount at a particular product prices; graphs as a horizontal demand curve
Total revenue (TR)
The total number of rands received by a firm from the sale of a product; equal to the total expenditure for the product produced by the firm; equal to the quantity sold (demanded) 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 as price; and it 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 or resource.
Market period
A period in which producers of a product are unable to change the quantity produced in response to a change in its price and in which there is a perfectly inelastic supply.
Short run
(1) In microeconomics, a period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources (usually plant) are fixed and some are variable.
(2) In 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
(1) Microeconomics, a period of time long enough to enable producers of a product to change the quantities of all resources they employ; period in which all resources and costs are variable and no resources or costs are fixed.
(2) Macroeconomics, a period sufficiently long for nominal wages and other input prices to change in response to a change in the nation’s 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 two products are substitute goods; a negative coefficient indicates they are complementary goods. z
Income elasticity of demand
The ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income; measures the responsiveness of consumer purchases to income changes.
