# Shared Flashcard Set

## Details

P&R Chap 2
Supply and Demand
24
Economics
09/22/2013

Term
 Demand Curve (Equation)
Definition
 Qd = Qd(P)
Term
 Supply Curve (Equation)
Definition
 Qs = Qs(P)
Term
 "change in supply"
Definition
 shift in supply curve (typically in response to price changes)
Term
 "change in quantity supplied"
Definition
 movements along the supply curve (typically in response to "other supply-determining variables" such as lower wages, production costs, raw material costs, interest rates...)
Term
 elasticity
Definition
 percentage change in one variable resulting FROM a 1-percent increase in another
Term
 price elasticity of demand
Definition
 percentage change in quantity demanded of a good resulting FROM a 1-percent increase in its price. i.e... "the change in quantity associated with a change in price"FORMULA: Ep = (% change Q)/(% change P)or...Ep = (P/Q) times (change Q/ change P)*usually a negative number
Term
 linear demand curve
Definition
 demand curve that is a straight line (slope is constant)
Term
 magnitude of price elasticity of demand
Definition
 its absolute sizee.g. if Ep = -2, then the elasticity is 2 in magnitude
Term
 demand is price elastic when...
Definition
 price elasticity is >1 in magnitude (typically when close substitutes exist)
Term
 demand is price inelastic when...
Definition
 price elasticity is <1 in magnitude (typically when few close substitutes exist)
Term
 main factors affecting price elasticity of demand
Definition
 in general, price elasticity of demand depends on the availability of substitute goods. i.e.... when there are close substitutes, a price increase will cause consumer to buy LESS of the good and MORE of the substitute. demand will then be highly price elastic.
Term
 infinitely elastic demand
Definition
 (a flat, horizontal demand curve)principle that consumers will buy as much of a good as they can get a single price. BUT... for any higher price, the quantity demanded drops to zero, while for any lower price quantity demanded increases without limit.
Term
 completely inelastic demand
Definition
 (a vertical demand curve)principle that consumers will buy a fixed quantity of a good, regardless of its price
Term
 arc elasticity of demand
Definition
 price elasticity calculated over a range of prices
Term
 measuring price elasticity of demand...
Definition
 must be done at a particular point on the demand curve. this is because it will generally change as you move along the curve.
Term
 Income elasticity of demand
Definition
 percentage change in the quantity demanded resulting from a 1-percent increase in income* demand for goods usually rises when aggregate incomes riseFORMULA: IEoD = (% Change in Quantity Demanded)/(% Change in Income)
Term
 cross-price elasticity of demand
Definition
 how demand for some goods is affected by prices of other goodsDEF: percentage change in the quantity demanded of one good resulting from a 1-percent increase in the price of anotherFORMULA: CPEoD = (% Change in Quantity Demand for Good X)/(% Change in Price for Good Y)*positive when goods are substitutes (when the price of butter goes up, so too will demand for margarine)*negative when compliments (the cross-price elasticity of motor oil with respect to gasoline is negative, since increases in gas prices make people drive less, pushing down demand for motor oil)
Term
 cross-price elasticity of demand
Definition
Term
 price elasticity of supply
Definition
 percentage change in quantity supplied resulting from a 1-percent increase in price.*usually positive, since higher prices give producers incentives to increase output
Term
 variables that affect elasticities of supply
Definition
 - prices (price elasticity of supply -- usually positive)- production costs (wages, raw materials, etc -- usually negative, since higher costs put downward pressure on production)
Term
 point elasticities
Definition
 elasticities at any particular point on the demand curve or supply curve
Term
 arc elasticities
Definition
 calculating elasticity over a portion of the demand or supply curve
Term
 arc elasticity of demand
Definition
 price elasticity calculated over a range of prices*rather than choosing either the initial or the final price, we use an average of the twoFORMULA (for any elasticity ** verify this): [[QDemand(NEW) - QDemand(OLD)] / [QDemand(OLD) + QDemand(NEW)]]*2
Term
 still need to review:short-run vs long-run elasticitieseffects of gov-intervention/price controlspractice Qs
Definition
 do it ok.
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