Elasticities - Vocabulary Flashcards
What is price elasticity of demand?
measure of the responsiveness of the quantity demanded of a good or service to a change in its price
What is elastic demand?
A change in the price of a good or service will cause a proportionally larger change in quantity demanded
What is inelastic demand?
A change in the price of a good or service will cause a proportionally smaller change in quantity demanded
What is unit elastic demand?
A change in the price of a good or service will cause a proportionally equal change in quantity demanded
What is cross elasticity of demand?
a measure of the responsiveness of the demand for a good or service to a change in price of a related good
What are substitute goods?
goods that can be used instead of each other, ie butter and margarine; substitute goods have positive price elasticity of demand
What are compliment goods?
goods which are used together; ie DVD players and disks; compliment goods have negative price elasticity of demand
What is income elasticity of demand?
measure of the responsiveness of demand for a good for a change in income
What is a normal good?
has positive income elasticity of demand; as income rises, demand increases
What is an inferior good?
has negative income elasticity of demand; as income rises, demand falls
What is price elasticity of supply?
a measure of the responsiveness of the quantity supplied of a good or service to its change in price
What is an indirect tax / ad valorem tax?
an expenditure tan on a good or service; shown as an upward shift in the supply curve where the distance between the two curves is the size of the tax
What is the incidence of tax / tax burden?
refers to the amount of tax paid by the producer or the consumer; if the demand for goods is inelastic, the greater the incidence of tax falls on the consumer; if the demand is elastic, the greater incidence of tax falls on the producer
