Elasticity Flashcards
Inelasticity
Perfectly inelastic=0
Inelastic = <1
PeD
Measure of how much the Qd of a good responds to a change in P
=%
Elasticity
Perfect=infinity
Elastic= >1
Unit= 1
Factors affecting PeD
Availability of close substitutes Necessities vs luxuries Type of market Proportion of income on product Time
Working out PeD using midpoint method
PeD= (Q2-Q1) / [(Q2 + Q1) / 2]
|
(p2-p1) / [(p2+p1) / 2]
What is the total expenditure
Amount paid by buyers (PxQ)
Inelastic- P and TE move SAME direction
Elastic- OPPOSITE
Unit- CONSTANT
What is income elasticity of demand
Measure of how much Qd responds to a change in consumers income
YeD- %
What is cross price elasticity of demand
Qd of 1 good responds to change in P of other
XPeD= %
What is price elasticity of supply
Qd responds to
Determinants of PeS
Time Productive capacity Size of firm/industry Mobility of FOP Ease of storing stock/inventory