Term
| Price Elasticity of Demand (D) |
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Definition
| A measure of the responsiveness of a quantity demanded due to a change in price |
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Term
| Price Elasticity of Demand Equation |
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Definition
| Price Elasticity of Demand=(Percent Change in Quantity Demanded)/(Percent Change in Price) |
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Term
Demand is elastic when:
|elasticity|<1
T/F
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Definition
False
Demand is elastic when the absolute value of elasticity is greater than one |
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Term
Demand is inelasticelastic when:
|elasticity|<1
T/F |
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Definition
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Term
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Definition
| When elasticity is equal to +/- 1 |
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Term
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Definition
| Price Elasticity of Demand=[(Q2-Q1)/{(Q1 + Q2)/2}]/[(P1-P2)/{(P1+P2)/2}] |
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Term
When demand curves intersect, the flatter curve is less elastic
T/F |
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Definition
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Term
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Definition
When a demand curve line is a vertical line
[image] |
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Term
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Definition
When a demand curve line is horizontal
[image] |
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Term
| Determinants of the Price Elasticity of Demand |
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Definition
Availability of close substitutes
Passage of time
Luxuries versus necessities
Definition of the market
Share of the good in the consumer's budget |
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Term
| Availability of Close Substitutes and its effect on Elasticity |
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Definition
| If a product has more substitutes available, it will have more elastic demand. If a product has less substitutes available, it will have less elastic demand. |
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Term
| Passage of time and its effect on price elasticity |
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Definition
| The more time that passes, the more elastic the demand for a product becomes |
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Term
| Luxures versus necessities and its effect on price elasticity |
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Definition
| The demand curve for a luxury is more elastic than the demand curve for a necessity |
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Term
| Definition of the market and its effect on price elasticity |
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Definition
| The more narowly we define a market, the more elastic the demand will be |
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Term
| Share of a good in the consumers budgetand its effect on price elasticity |
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Definition
| The demand for a good will be more elastic the larger the share of the good in the average consumer's budget |
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Term
| Relationship between Price Elasticity of Demand and Total Revenue |
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Definition
Unit elastic is when total revenue is the greatest
[image]
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Term
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Definition
| The total amount of funds a firm receives from selling a good or service |
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Term
| Cross Price Elasticity of Demand (D) |
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Definition
| The effect on a product when the price of a substitute changes |
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Term
| Cross Price Elasticity of Demand Equation |
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Definition
| Cross Price Elasticity of Demand= (Percent change in quantity demanded of one good)/(Percent change in price of another good) |
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Term
| Income Elasticity of Demand (D) |
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Definition
| Measures the responsiveness of quantity demanded to changes in income |
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Term
| Income Elasticity of Demand Equation |
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Definition
| Income Elasticity of Demand= (Percent change in quantity demanded)/(Percentage change in income) |
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Term
| Price Elasticity of Supply Equation |
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Definition
| Price Elasticity of Supply = (Percent change in quantity supplied)/(Percent change in price) |
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