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21 Cards in this Set

  • Front
  • Back
Elasticity
Measures responsiveness of one variable to changes in another variable.
Price Elasticity of Demand
Measures buyers responsiveness of their quantity demanded to a change in the price.
Price Elasticity of Demand Formula
Ed=%Change(Quantityd)/%Change(Price)
Midpoint Formula
Q2 -Q1/(Q2+Q1/2)/P2-P1(P2+P1/2)
Elastic
Buyers are relative responsive to changes of prices and Ed>1; Relatively flat
Inelastic
Buyers are relative UNresponsive to changes of prices and Ed<1; Relatively Steep
Unit elastic
Ed=1
Perfectly Elastic
Ed=Infinity; Horizontal
Perfectly Inelastic
Ed=0; Vertical
Elasticity along a linear demand Curve
1. AS you move down a line the coefficient will be getting smaller and smaller.
2. The top portion is elastic Ed>1, Inelastic Ed<1,
Price Elasticity & Total Revenue
Due to a change in price.
Luxury or Necessity
a. Luxury= Elastic
b. Necessity= Inelastic
Availability of Close Substitutes.
a. Less Substitutes= Inelastic
b. More Substitutes= Elastic
Time
a. Short time for adjustment= Inelastic
b. Long time for adjustment= Elastic
Portion of total Budget
a. Small Portion= Inelastic
b. Large Portion= Elastic
Definition of Market
a. Broad definition= Elastic
b. Narrow Definition= Inelastic
Income Elasticity
Buyers responsiveness to a change in income;
1. Normal good has a Positive Elasticity
2. Inferior good has a Negative Elasticity
Income Elasticity Formula
%Change(Quantityd) /%Change(income)
Cross Price Elasticity
Buyers responsiveness to a change in a price of another good;
1. A Substitute has a positive Elasticity
2. A Complement has a negative Elasticity
Cross Price Elasticity Formula
%Change(Quantityd-x) /%Change(price-y)
Chapter 5
Elasticity