Economics--Elasticity
Terms
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- Elasticity of Demand
- THe percentable change in quantity demanded of the product divided by the percentage change in price of the product.
- Perfectly elastic demand curve
- A horizontal demand curve, indictating that consumers will substitute away from this good as price increases.
- Perfectly inelastic Demand Curve
- A vertical demand curve indicating that there is no change in the quanity demanded as the price changes.
- Total Revenue
- = Price X Quantity
- Price Discrimination
- Charging different customers different prices for the same product.
- Determinants of Elasticity of Demand
-
Existence of substitutes
% of consumer's total budget
Time
Advertizing
"Necessity" of the product - Cross Price Elasticity of Demand
- The percentage change in the quantity demanded for one good divided by the percetage change in the price of a related good.
- Income elasticity of demand.
-
% change in the quantity X
_____________________________
% change in income - Normal Goods
- Goods with a positive Income elasticity of demand.
- Inferior Good
- Income elasticty is negative.
- PRice elasticity of Supply
- Percentage change in quantity supplied of a good divided by by the percentage change in price.
- Short run
- A time period short enough that at least one of the factors of of proction cannot be varried (usually this is capital).
- Long Run
- A period of time long enough that all factors of production can be varied.
- Tax incidence
- A measure of who pays a tax (the consumer of the producer).
- Determinants of Elasticity of Supply
- Unused capacity and time determine how elastic the supply of a good will be.