Term
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Definition
| a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants |
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Term
| Price Elasticity of Demand |
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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. |
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Term
| Determinants of Elasticity: Availability of close resources |
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Definition
| More elastic because consumers can easily switch to the substitute. Ex. butter and margarine |
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Term
| Determinants of Elasticity: Necessities versus Luxuries |
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Definition
Necessities: Inelastic, change is minimal
Luxuries: Elastic, much larger change |
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Term
| Determinants of Elasticity: Definition in the Market |
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Definition
- Narrowly defined markets (vanilla ice cream) is elastic other flavors serve as substitutes.
- Broad markets (food) are inelastic because there's no good substitute. |
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Term
| Determinants of Elasticity: Time Horizon |
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Definition
Goods are more elastic over longer periods of time.
Ex. Gas: Prices rise and people don't immediately abandon the fuel, but over time they find alternate methods of transportation |
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Term
| Perfectly Inelastic Graph |
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Definition
| Completely vertical: Change in price does not affect quantity demanded |
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Term
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Definition
| Rather steep slope: Change in price is larger than change in quantity demanded |
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Term
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Definition
| Both changes are the same |
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Term
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Definition
| Flatter slope: Change in price is less than change in quantity demanded |
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Term
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Definition
| Horizontal: at one price, consumers will buy any amount |
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Term
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Definition
| Money paid by buyers, P x Q |
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Term
| Income Elasticity of Demand |
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Definition
| A measure of how much the quantity demanded of a god responds to a change in consumers' income |
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Term
| Income Elasticity of Demand Formula |
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Definition
Percentage change in Quantity Demanded
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Percentage change in income |
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Term
| Cross-Price Elasticity of Demand |
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Definition
| A measure of how much the quantity demanded of one good responds to a change in the price of another good |
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Term
| Cross-Price Elasticity of Demand Formula |
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Definition
Percentage change in quantity demanded of good 1
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Percentage change in price of good 2 |
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Term
| Positive Cross-Elasticity |
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Definition
| Substitutes: price rises for 1, demand rises for 2 |
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Term
| Negative Cross-Elasticity |
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Definition
| Complements: prices rises for 1, demand falls for 2 |
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Term
| Price Elasticity of Supply |
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Definition
| How much quantity supplied responds to change in price of that good |
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