elasticity Flashcards
price elasticity of demand
measures the response in quantity demanded in a change of price
average of two!!
change in qd/change in price
elastic demand
change of price is significantly smaller than change of quantity
x>1 (ignore negative)
perfectly elastic demand
horizontal straight —-
will demand at a given price, demand none any higher
inelastic demand
change in price is significantly larger than change in quantity
x
perfectly inelastic demand
demand is constant at any price
unitary demand
quantity demanded changes by the same proportion
availability of substitutes
greater number of subs = more elastic
factors affecting price elasticity of demand
availability of substitutes whether a good is a necessity or not proportion of income spent time definition of market: broader market, more elastic. eg brand
necessity or luxury
luxury- elastic
necessity - inelastic
proportion of income spent
higher proportion, higher chance of it being elastic
time
short run, goods are inelastic
long run, elastic as consumers can change
calculating elasticity - total revenue
price x q. sold
- moves in opposite direction of price change - elastic
elasticity of supply
refers to the quantity supplied to a change in price
inelastic supply
quantity supplied is proportionally less than a change in the price
elastic supply
quantity supplied changes proportionally more than a change in the price
income elasticity of demand
measures the percentage change in quantity demanded for a change in inclme
relevance of income elasticity
- may lead to a change in food products, not necessarily the amount of food
- ## government uses this knowledge to control the economy
cross elasticity of demand
- measures the responsiveness in q.d of one good to changes in the price of another good
- positive - substitutes
- neg - complements
elasticity of supply determinants
- > time: increase time to adjust production
- > costs of inputs: substitute production / substitute inputs
