Term
Explain how economists measure the sensitivity(elasticity) of demand to changes in price (2)
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Definition
Economists can measaure the price elasticity of demand by using the formula (%∆Q/%∆P). And if the outcome is greater than |1| then the price is elastic, and if the outcome is less than |1| the price is inelastic.
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Term
| Explain how economists measure the elasticity of demand to changes in Income |
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Definition
| SImilar to the changes in price we use the formula (%∆Q/%∆Income) and same rule applies here, if the outcome is > than |1| then the demand is elastic, and if it is < |1| then it is inelastic. |
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Term
How do economists measure the elasticity of supply to changes in prices (1)
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Definition
| Economists can measure the price elasiticity of supply with the formula (%∆Q Supplied / %∆Price) |
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Term
| How can these measurements be used to predict 1) Changes in prices or 2) changes in quantities ? (4) |
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Definition
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Term
| Explain the measure than can be used to identify substitutes and complements (2) |
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Definition
| The measure that we use to identify substitues and complementary goods is called cross-price elasticity and the formula we use is: (%∆Product A/%∆Product B) |
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Term
| How does a price increase alter consumption choices? |
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Definition
| As the price increase of a good or service, it will make the consumer feel relatively poorer due to the income effect. And will likely make the consumer chose substitutes insted. |
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