Elasticity Flashcards
Price elasticity of demand
A consumers responsiveness to a change in price
Elasticity
The % change in one variable due to a % change in another variable
Equation for price elasticity of demand
Ed= pdq/pdp x p/q
When is something elastic?
When E
When is something inelastic?
0>E>-1
Why does elasticity change along the curve even if it’s straight?
Because elasticity depends on p and q
What is an example of a curve with constant elasticity of demand?
q=Ap^-b
Ed= -b
What do revenue changes depend on?
The price elasticity of demand
When does total revenue increase?
When price is increased and demand is inelastic
When does total revenue decrease?
When price is increased and demand is elastic
Equation for income elasticity of demand
Ey= pdq/pdy x y/q
What is a luxury good?
A good with Ey>1
Cross price elasticity of demand equation
Eab= pdqa/pdpb x pb/qa
What is the cross price elasticity of a substitute
Eab>0
Equation for price elasticity of supply
Es= pdq/pdp x p/q
