vocabulary
is a measure of the responsiveness of a variable to changes in price or any of the variable´s determinants.
elasticity
is a measure of the responsiveness of the quality of a good demanded to changes in its price.
price elasticity of demand (PED)
is a measure of the responsiveness of the quantity of a good supplied to changes in its price.
price elasticity of supply (PES)
what does PED and PES stand for?
price of elasticity of demand and price of elasticity of supply.
a percentage increase in income produces a smaller percentage increase in quality demanded
in come inelastic demand necessities
the quality of changing very little
inelasticity
the more substitutes a good has in price the more consumers can switch to other products, leading to it being more elastic.
number and closeness of substitutes
the more easily and quickly resources can be shifted out of one line of production and into another, the greater the responsiveness of quantity supplied to changes in price and the greater the PES.
mobility factors of production
what is the difference between necessities and luxuries?
necessities is something that is needed and luxuries is something that is wanted
a percentage increase in income produces a larger percentage increase in quality demanded
income elastic demand luxuries and services
the percentage change in quantity demanded is smaller than the percentage change in price, so the value of PED is less than one; quantity demanded in relatively unresponsive to changes in price, and demand is
price inelastic
the longer the time period in which a consumer makes a purchasing decision, the more elastic the demand.
length of time
sometimes firms may have the capacity to produce that is not being used.
spare capacity of firms
what is the difference between inelastic and elastic?
elastic demand is the consumer demand for a product changes proportionately when the price of the good or service changes. inelastic demand means that consumer demand for a product does not change proportionately with a fall or rise in its price.
what type of line is perfectly inelastic?
vertical line (straight)
when a change in price results in an infinitely large response in quantity demanded, the demand is
perfectly elastic
one we consider essential in our lives and the other are more things that we want rather than are needed.
necessities v.s. luxuries
some firms store stocks of output they produce but do not sell right away.
ability to store stocks
how do you find elasticity?
consider if the product is a luxury, has substitutes, and it's impact on a budget.
what type of line is perfectly elastic?
horizontal line (straight)
is the amount of money received by firms when they sell a good or service, and is equal to the price of the good times the quantity of the good sold.
total revenue (TR)
the larger the proportion of one´s income needed to buy a good, the more elastic the demand
proportion of income spent on a good
if the costs of producing extra output increase rapidly, then supply will be inelastic, as firms will have difficulty expanding their output since they are unlikely to want to incur large costs.
rate at which costs increase
what is cross elasticity of demand?
an economic concept that measures the responsiveness in the quantity demanded of one good when the price for another good changes
a given percentage change in price leads to an equal percentage change in quantity demanded or supplied
unitary PES (price elasticity of supply)