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Econ 101
Chapter 5
Question | Answer |
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Elasticity | a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants |
price elasticity of demand | 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 |
Computing the Price Elasticity of Demand. What is the equation? | Price elasticity of demand = % change in quantity demanded/ % change in price |
Total revenue | the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold P X Q= Total Revenue |
Inelastic Demand | (price elasticity less than 1) price and total renue move in the same direction |
Elastic Demand | (price elasticity greater than 1) price and total revenue move in opposite directions |
Income elasticity of demand | Measures how the quantity demanded changes as consumer income changes Income Elasticity of Demand = % change in quantity demanded/ % change in income |
Cross-price elasticity of demand | measures how the quantity of one good responds to a change in the price of another good. Cross-Price elasticity of demand= $ change in quantity demanded of good 1/ % change in the price of good 2 |
Price elasticity of supply | measures how much the quantity supplied of a good responds to a change in the price of that good Price Elasticity of Supply = % change in quantity supplied/ % change in price |