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micro unit 2
| Term | Definition |
|---|---|
| price elasticity of demand (definition) | measures how responsive buyers are to price change (what % will the QD change in response to a 1% price change |
| price elasticity of demand (equation) | %changeinQD/%changeinprice (use absolute value) |
| elastic demand | when the PED is >1, curve is relatively flat, leads to large changes in quantity demanded, more sensitive |
| what makes a quantity more elastic | more substitution possibilities, more time to adjust consumption decisions, not a necessity, larger share of consumer income |
| inelastic demand | when the PED is less than one (buyers are not very responsive to price changes) curve is relatively steep |
| what makes a quantity more elastic | increases when fewer substitution possibilities, less time to adjust consumptions decisions, is a necessity, smaller share of consumer income |
| elasticity and slope | elasticity differs along the curve even when the slope is constant |
| perfectly elastic and inelastic demand | perfectly e - when demand curve is completely horizontal |Ed|=infinity perfectly in - when demand curve is completely veritcal |Ed|=0 both theoretical |
| percent price (or quantity) of demand | (P2-P1)/((Q2+Q1)/2) |
| percent change in quantity demanded | (price elasticity of demand)*(percent change in price) |
| total revenue | P*Q (both will change) |
| elasticity and revenue | elastic means higher revenue (smaller change in P will lead to huge change in Q) |
| cross-price elasticity of demand (definition) | measures how responsive the quantity demanded of one good is to price changes of another positive means substitutes, negative means complements |
| cross-price elasticity of demand (equation) | =%changeinQD/%changeinsPofanothergood |
| income elasticity of demand (definition) | how responsive your demand for a good is to changes in your income positive for normal goods (0<x<1 necessity, x>1 luxury) negative for inferior good |
| income elasticity of demand (definition) | %changeinquantitydemanded/%changeinincome |
| price elasticity of supply (definition) | how responsive sellers are to price changes (what percent the quantity supplied will increase following a 1% price change) |
| price elasticity of supply (equation) | %changeinQS/%changeinprice |
| inelastic supply | when suppliers can't increase the quantity supplied by much in response to a higher price when ratio is <1 |
| elastic supply | when suppliers are very responsive the a change in price ratio is >1 |
| increase of elasticity in supply | higher inventory (ability to respond quickly/ability to store inputs or goods), easily available variable inputs, extra capacity, easy entry and exit (into the market), and time |
Created by:
allison_07