ELASTICITY OF DEMAND & SUPPLY Flashcards
It refers to the degree of responsiveness of quantity demanded
and quantity supplied to any changes in its price.
ELASTICITY
It refers to the degree of responsiveness of quantity
demanded to a change in price.
PRICE ELASTICITY OF DEMAND
= 1
unitary
> 1
elastic
<1
inelastic
Demand is price elastic when the elasticity coefficient is greater than one. This means that a small change in price, results to a greater change in quantity demanded.
elastic demand
Demand is price inelastic when the
elasticity coefficient is less than one.
This means that a percentage change in
quantity demanded is less than the
percentage change in price.
INELASTIC DEMAND
Demand is ____________ when demand
is totally responsive to changes in price.
Perfectly Elastic Demand
Demand is ________ when quantity
demanded totally does not respond to any
changes in price.
Perfectly Inelastic demand
It refers to the degree of responsiveness of
a percentage change in quantity demanded
with a percentage change in price.
INCOME ELASTICITY OF DEMAND
It refers to the responsiveness of quantity in
response to a change in income.
INCOME ELASTICITY OF DEMAND
A good is considered as a _________ when its income elasticity is positive. This indicates a positive sign, which means that as income increases, more goods and services will be demanded.
NORMAL GOOD
a good is said to be ____________ when its
income elasticity is negative. This shows a negative sign, which means that as income rises, quantity demand for such goods decline.
INFERIOR GOOD
It refers to the degree of responsiveness of
a percentage change in quantity of a good X
with a percentage change in the price of good
Y.
CROSS ELASTICITY OF DEMAND
Normal, luxury goods
POSITIVE >1
