Elasticity and Consumer Theory Flashcards
it is the responsiveness of demand due to the change of its own price
Own Price elasticity of Demand
a Latin term means that all things equal
Ceteris paribus
basic necessity is relatively price inelastic compared with a luxury commodity
True
more substitutes, more elastic
True
more uses, more elastic
True
the degree of responsiveness between the degree of changes in price and changes in quantity
Supply/Demand Elasticity
if the absolute value coefficient is greater than 1, then the demand is
Elastic
if the absolute value coeffecient of demand is less than 1, then the demand is
Inelastic
degree of responsiveness between 2 variables
Elasticity
perfectly inelastic demand
/E/ is equal to 0
sub x
commodity x
inelastic or relatively inelastic
/E/ is less than 1
unit elastic
/E/ is equal to 1
elastic or relatively elastic demands
/E/ is greater than 1
perfectly elastic demand
/e/ is equal to infinity
used when the available figures on price and quantity are DISCRETE, and it is possible to isolate and calculate the incremental changes
Arc Elasticity Method
this elasticity formula is used in order to compute large prices in real estate and properties
Arc Elasticity
measures the responsiveness of the demand for a commodity due to the changes of the prices of OTHER goods and services
Cross Elasticity of Demand
the coefficient of cross elasticity of demand
Pxy or rhoxy
rho is less than zero
Complementary Goods
rho is greater than zero
Substitute Goods
rho is equal to zero
Independent Goods
this elasticity is used in order to compute whether goods are normal, luxury, or inferior goods
Income Elasticity of Demand
coefficient of income elasticity
Theta
the relative change in quantity demand due to a percentage change in INCOME of the consumer
Income Elasticity of Demand
theta is equal to one
Normal Good
theta is greater than 1
Luxury Goods
theta is less than 1
Inferior Good
theta is equal to zero (an increase in income is not associated with a change in the demand for a good)
Sticky Goods
food, water, warmth, rest
Physiological Needs
security, and safety
Safety Needs
intimate relationship, and friends
Belongingness and Love needs
prestige and the feeling of accomplishment
Esteem Needs
achieving one’s full potential, including creative activities
Self-Actualization
this elasticity formula is used in order to compare whether goods are substitutes or complements
Cross Price Elasticity
the satisfaction of an individual in his consumption
Utility
an approach wherein utility can be quantified or expressed in terms of numbers (Monetary Value)
Cardinal Utility
rational people think in a margin
Principle 3
as the price of commodity decreases, the consumption for that commodity increases
True
an approach wherein utility can be determined from the preference of two commodities or goods
Ordinal Utility
it is a concept that whenever a consumer consumes the same good, total utility increases but the marginal utility decreases
Principles of Diminishing Marginal Utility
a locus of points that shows a different combination of consumption/preferences that will give consumer the same LEVEL OF SATISFACTION OR UTILITY
Indifference Curve
indifference curve does not intersect and violates the concept of transitivity and consistency
True
