Elasticity of Demand
What is elastic demand
where elasticity is greater than 1
elasticity=0
perfectly inelastic
what is returns to scale
measure the change in output for a given change in the inputs
what is time value of money
a dollar today is worth more than a dollar in the future
what is present value of money
The current value of future cash flows discounted at the appropriate discount rate
What is unitary elastic demand
where elasticity is equal to 1
elasticity<1
inelastic demand
what is increasing returns to scale
when output grows at a faster rate than inputs
what is future value
is the amount an investment is worth after one or more periods
what is r
interest rate (r) of an investment
What is inelastic demand
where elasticity is less than 1
elasticity=1
unitary elastic
what is decreasing returns to scale
when inputs grow at a faster rate than outputs
what is simple interest
interest earned only on the original investment
what is t
number of periods of investment
What is price elasticity of demand
how much will demand change if there is a change in price
elasticity>1
elastic demand
what is constant returns to scale
when inputs and outputs grow at the same rate
what is compounding
The process of leaving your money and any accumulated interest in an investment for more than one period, thereby reinvesting the interest
what is discounting
Instead of compounding the money forward into the future, we discount it back to the present
What is the formula to measure price elasticty of demand
% change in quantity demanded/ % change in price
elasticty=infinity
perfectly elastic
how does returns to scale relate economies of scale
returns to scale is the relationship between product input and product output, while economies of scale is between product output and cost of production
what is the formula for future value of money
FV= PV x (1+r)^t
what is the formula for present value of money
PV = FV/(1+r)^t