Microeconomics- Chapter 5
Terms
undefined, object
copy deck
- What are the three types of elasticity?
-
1. Price Elasticity of Demand
2. Income Elasticity of Demand
3. Cross-Price Elasticity of Demand - What is the price elasticity of demand?
- It is an elasticity that measure the responsiveness of the quantity demanded of a good to its price.
- What is the income elasticity of demand?
-
It measure the responsiveness of the quantity demanded of a good to the income of the people demanding the good.
It is measured as the percentage change in demand that occurs in response to a percentage change in income. - What is the cross-price elasticity of demand?
- It measures the rate of response of quantity demanded of one good, due to a price change of another good. If two goods are substitutes, we should expect to see consumers purchase more of one good whent eh price of its substitute increases.
- If the elasticity is greater than 1, it is ________ _______.
- If the elasticity is greater than 1, it is relatively elastic.
- If the elasticity is less than 1, it is ________ _______.
- If the elasticity is greater than 1, it is relatively inelastic.
- If the elasticity is equal to 1, it is ________ _______.
- If the elasticity is equal to 1, it is unitaritary elastic.
- If the elasticity is equal to 0, it is ________ ________.
- If the elasticity is equal to 0, it is completely inelastic.
- If the elasticity is infinite, it is _______ __ _______.
- If the elasticity is infinite, it is always in demand.
- What is the price consumption line/curve?
-
If the price of one commodity (x) changes a new set of combinations (x,y) is created between the changing tangents of the budget line and indifference curves forming the 'price-consumption curve' for the commodity (x)- assuming constant income and prices of the other commodity (y).
The price-consumption curve shows how much of a commodity (x) is purchased if its price changes. - What is a indifference curve?
- It is a graph showing combinations of goods for which a consumer is indifferent, that is, it has no preference for one combination versus another. They are a device to represent preferences and are used in choice theory.