Micro Notes 7 Flashcards
amount that demand responds to market conditions
elasticity
insignificant change in demand regardless of market conditions
inelastic
a good for which there are no substitutes; more inelastic; e.g healthcare, gasoline
necessity
more elastic
luxury
necessity vs luxury
price and quantity of available substitutes
time frame
price relative to wealth and income
factors that determine inelasticity
% of quantity change / % of price change
ϵ<1 then inelastic
ϵ>1 then elastic
ϵ=0 then perfectly inelastic
ϵ= 1 then unitary elasticity
Measuring elasticity ϵ
percentage change in quantity and price are equal
unitary elasticity
price X quantity
total revenue
significantly elastic demand in which demand is more dependent on price
price sensitive
factors that alter changes in demand
shift variables
a variable that is impacted by complements and substitutes (related goods)
price of related goods
items that are often consumed together (e.g. french fries & ketchup)
complements
goods that can replace the utility of another good (e.g. Pepsi & Coke)
substitutes
how much a quantity demand change in one good impacts the price of another good
cross price elasticity
how much the quantity demanded of a good of services changes as a result of income
income elasticity (of demand)
any good in which demand increases as income increases
normal goods
any good in which demand decreases as income increases
inferior goods
changes in demand as people enter or exit a market; demographics of a market are important; these are often age-specific factors of a good or service
entry & exit shifts in demand
sum of the individual demands for a product from buyers in the market
market demand
