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18 Cards in this Set
- Front
- Back
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price elasticity of demand
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the percentage change in the quantity demanded of product divided by the percentage change in the price of that product
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perfectly elastic demand curve
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a horizontal demand curve indicating that consumers can and will purchase all they want at one price
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perfectly inelastic demand curve
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a vertical demand curve indicating that there is no change in the quantity demanded as the price changes
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elasticity
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price elasticity of demand declines as we move down a straight-line demand curve elastic: e>1, inelastic: e<1, unit-elastic: 0<e<1
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elasticity equation
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e=(Q2-Q1)/[(Q1+Q2)/2] / (p2-p1)/[(p1+p2)/2]
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Total revenue ='s
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TR=P*Q, total revenue=price*quantity
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price discrimination
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charging different customers different prices for the same product
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dumping
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occurs when an identical good is sold to foreign buyers for a lower price that is charged to domestic buyers
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determinants of the price elasticity of demand
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existence of substitutes, importance of the product in the consumer's total budget, time period underconsideration
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cross-price elasticity of demand
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the percentage change in the quantity demanded for one good divided by the percentage change in the price of a related good, everything else held constant. measures the degree to which goods are substitutes or complements.+=substitues, -=complements
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income elasticity of demand
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the percentage change in the quantity demanded for a good divided by the percentage change in income, everything else held constant. goods>0 are normal goods. necessities have lower income elasticities than luxury goods
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normal goods
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goods for which the income elasticity of demand is positive
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inferior goods
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goods for which the income elasticity of demand is negative. goods given up for other goods when income rises
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luxury goods
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a good or service that will be purchased only when income is high
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price elasticity of supply
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the percentage change in teh quantity supplied divided by the percentage change in price, everything else held constant. elastic>1, inelastic<1
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short run
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a period of time short enough that the quantities of the least one of the resources cannot be varied. not long enough for the firm to change quantities of all the resources
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long run
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a period of time long enough that the quantities of all resources can be varied
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tax incidence
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a measure of who pays a tax. business or consumer-inelastic consumer, elastic business
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