Price determination in a Competitive Market 2 Flashcards
1
Q
What is the definition of Price Elasticity of Demand (Ped)
A
Measures the responsiveness of quantity demanded to changes in price.
2
Q
What is the equation for Ped?
A
% ∆ Qd / % ∆ P
3
Q
Why is Ped always a negative value?
A
The relationship between price and demand is inverse.
4
Q
What are the characteristics of elastic demand?
A
- More responsive to a change in price
- % ∆ Qd > % ∆ P
- The change in Qd/s is proportionally greater than change in P/Y
5
Q
What are the characteristics of inelastic demand?
A
- Less responsive to a change in price
- % ∆ Qd < % ∆ P
- The change in Qd/s is proportionally less than change in P/Y
6
Q
What is there between the sign and the value?
A
An iron curtain
7
Q
What is the definition of Yed?
A
Measures the responsiveness of demand to changes in income.
8
Q
What is the equation of Yed?
A
% ∆ D / % ∆ Y
9
Q
What is the sign for a normal and inferior good for Yed?
A
+ = normal good
- = inferior good
10
Q
A
