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9 Cards in this Set
- Front
- Back
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Elasticity of demand (Ep) =
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(% Change in quantity demanded/% change in Price)
Measures the sensitivity of the quantity demanded to a 1% change in price Is always negative Ep = {(q1-q0)/(q1+q0)}/{(p1-p0)/(p1+p0)} |
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Arc Elasticity
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measure of elasticity based on percentage changes relative to the average value of each variable between two points.
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Degrees of elasticity:
Elasticity = 1 |
unitary; P increase causes no change in TR
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Degrees of elasticity:
Elasticity > 1 |
elastic; P increase causes TR to decrease
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Degrees of elasticity:
Elasticity = 0 |
perfectly inelastic, vertical demand curve
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Degrees of Elasticity:
Elasticity < 1 |
inelastic; increase causes TR to increase
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Demand is more elastic when:
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-There are a large number of substitutes
-The consumer spends a large % of their income on the good -The good is a luxury compared to being a necessity -The longer the time frame |
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Elasticity of Supply(Es) =
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(% Change in quantity supplied/% change in Price)
Measures the sensitivity of the quantity supplied to a 1% change in price Is always positive Ep = {(q1-q0)/(q1+q0)}/{(p1-p0)/(p1+p0)} |
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Income Elasticity (Ey) =
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(% Change in quantity demanded/% change in Income)
Measures the sensitivity of the quantity demanded to a 1% change in income Ey = {(q1-q0)/(q1+q0)}/{(y1-y0)/(y1+y0)} |
