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