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18 Cards in this Set
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Elasticity |
A measure of responsiveness of the quantity demanded of a good to a change in some variable. |
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Price Elasticity of Demand |
Measures the percentage change in the quantity demanded for a good caused by the percentage change in the price of the good itself. |
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A Good that is Relatively Elastic ( Demand ) |
When the percentage change in the quantity demanded of a good is greater than the percentage change in the price of the good itself. |
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A Good that is Perfectly Elastic ( Demand ) |
When any increase in the price of that good results in its quantity falling to zero. |
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A Good that is Unitary Elastic ( Demand ) |
When the percentage change in the quantity demanded of a good is equal to the percentage change in the price of that good. |
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A Good that is Relatively Inelastic ( Demand ) |
When the percentage change in quantity demanded of a good is less than the percentage change in price of that good. |
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A Good that is Perfectly Inelastic ( Demand ) |
When the percentage change in the price of a good causes no change in the quantity demanded of that good. |
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Factors that Affect Price Elasticity of Demand |
* The availability of close substitutes * Complementary Goods * Is the commodity a luxury or necessity * The proportion of income that is spent on the commodity * The durability of the commodity * Expectations as to future changes in price * The length of time allowed for adjustment to price changes *Brand loyalty * Number of alternative uses the good has |
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Importance of Understanding Elasticity |
* Importance in taxation policy / Minister for Finance * Importance to Businesspeople * Use in International Trade |
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Cross Elasticity of Demand |
Measures the percentage change in the quantity demanded for one good caused by the percentage change in the price of another good. |
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Substitute Goods |
Goods that satisfy the same needs and act as alternatives to each other. |
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Complementary Goods |
Goods that are interrelated and should be used in conjuction with each other. |
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Income Elasticity of Demand |
Measures the percentage change in the quantity demanded for a good caused by the percentage change in the income of consumers. |
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Price Elasticity of Supply |
Measures the relationship between percentage change in quantity supplied and a percentage change in price. |
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A Good that is Elastic ( Supply ) |
When the percentage change in quantity supplied is greater than the percentage change in price. |
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A Good that is Inelastic ( Supply ) |
When a change in the price of the good causes less than a percentage change in the quantity supplied of a good. |
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Zero Elasticity of Supply |
Indicates that an increase in the selling price of the good does not result in any increase in the quantity supplied. |
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Factors that Affect Elasticity of Supply |
* Firm's capacity * Mobility of the factors of production * Time period * Nature of the product * Storage costs * Cost conditions * Products in joint supply * Stock |
