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Ch. 5 Elasticity and Its Application
for exam 1
5
Economics
Undergraduate 1
02/08/2011

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Term
elasticity
Definition
a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
Term
price elasticity of demand
Definition
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
Term
What determines the price elasticity of demand?
Definition
availability of close substitutes, necessities versus luxuries (necessities tend to have inelastic demands whereas luxuries have elastic demands), definition of the market (narrowly defined markets tend to have a more elastic demand than broadly defined markets i.e. food and ice cream), and time horizon (goods tend to have more elastic demand over longer time horizons)
Term
total revenue
Definition
the amount paid by buyers and received by sellers of a good computed as the price of the good times the quantity sold
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