MICRO L5 - Elasticity (X) Flashcards
1
Q
define price elasticity of demand
A
the responsiveness of quantity demanded to a change in price
2
Q
determinants of price elasticity of demand
A
- availability of close substitutes
- necessities VS luxuries
- market demand VS firm demand
- time horizon
3
Q
Availability of close substitutes
A
Goods with close substitutes tend to have more elastic demands
4
Q
Necessities VS luxuries
A
Goods that are essential tend to have less elastic demand
5
Q
market demand VS firm demand
A
Narrowly defined markets have more elastic demand than broadly defined markets
6
Q
time horizon
A
Demand is more elastic when the associated time period is longer
7
Q
how to calculate price elasticity of demand
A
% change in quantity demanded / % change in price
8
Q
perfectly elastic and inelastic demand PED values
A
- perfectly elastic = ∞
- perfectly inelastic = 0
- inelastic = PED < 1
- elastic = PED > 1
9
Q
A
