lesson 9 Flashcards
what is revenue?
the total amount of income generated by the sale of goods and services
the money coming in
equation for revenue
price times quantity
what does the elasticity of demand show?
(not what PED is but what does it show happening to the change in demand)
how sensitive demand is
what is PED?
price elasticity of demand measures a consumers responsiveness to a change in a goods own price
firms are very interested in what happens to demand for their products should the price change
characteristics of an elastic change
sensitive
big
noticeable
even with a small price change there will be a large change in demand meaning there are substitutes available
characteristics of an inelastic change
insensitive
not much changes
if a change in price were to be matched by an exactly proportionate change in demand, demand would not be elastic or inelastic it would be…
unitary
PED equation
% change in quantity demanded
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% change in price
when calculating PED is it always positive or negative?
negative
(demand curve has a negative relationship with price)
numerically how do we know is PED is insensitive?
if its less than one
numerically how do we know is PED is sensitive?
if its more than one
four reasons why elasticity varies
- substitutability
- percentage of income used
- time
- width of market
in terms of elasticity what does substitutability impact?
if there is choices, so close substitutes, it will lead to an elastic demand in our own good as people are able to find cheaper alternatives
in terms of elasticity what does percentage of impact used influence?
expensive goods that take up a lot of your income will tend to be more elastic
in terms of elasticity what does time impact?
demand for goods and services is more elastic in the long run than in the short run because it takes time to respond to a price change
