Flashcards in Adobe Ch. 4 Deck (51):
1
Law of Demand
consumers will buy more of a product when price decliens and vice versa
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elastic
modest price change causes substantial change in quantity
3
inelastic
substantial price c change cause modest change in quantity
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price elasticity for demand for good x
cahnge in qty dem of x/(sum of new and old demand qty/2))/change in price of x/(sum of new and old prices/2))
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elastic demand is always
negative, but think in absolute value
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elastic demnd
demand is price elastic if speicific percent cahange in price reslts in larger percent change- Ed greater than 1
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inelastic demand
demand is price inelastic iff speciic percent change in price results in smaller percent
8
unit elastic demand
demand is unit elastic if percent change in price results in same percent change in q demanded
9
perfectly inelastic demand
price change results in no change in q demand- rare- demand curve is vertical, zero qty response facing price change
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perfelc elastic demand
demand curve faced by price taking firm a
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elasticity of demnd
measures responsiveness of q demanded to change in produt price
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larger Ed
more people respond to price
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smaller Ed
less people respond to price
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Ed less than one
not much reaction - insensitive, demnad inelastic
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Total revenue is
P x Q
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Ed greater than one
demand elastic, larger/more people respond to price
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Ed quals one
change in demand equals in change in price
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price discrimination
charging price sensitive customers less and price insenstiive customers more
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elastic demand, what happesn to price, qty and total rev
drops, raises, raise revenu
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inelastic demand, what happens to price, qty, and total rev
rise, drop, raise revenue
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total revenue test- elastic drop in price equals what in total rev
rise
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inelastic drop in price equals
rise in total rev
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unit elasticity drop in price equals what
total revenue unchanged
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demand is what when price is high
elastic
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determinants of price elasticity of demand
substainability, budget share, luxuries v necessities, time
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substainability
larger number of substitute goods availbabel equals greater price elasticity of demand
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budget share
increase price of product relative to one income greater price elasticity of demand for it
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luxuries v necesities
demand for luxurious goods tends to be more elastic than demand for necessities
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time
demand for product is more elastic the longer the time period under consideration- habit formation, product durability
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law of supply
producers supply more product when price rises and vice versa
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price elasticity of supply
measures responsiviesness of qty supplied by producers when product price changes
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elastic
modest price change equals substantial change in quantity
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inelastic
substantial price change equals modest change in qty
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elastic supply
Es greater than oe, response in supply qty to price change
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unit elastic supply
Es quals one- response in supply qty to price change is proportional
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inelastic supply
Es less than 1, response in supply qty to price change less than proprotional
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four factors in supply
required inputs- readily avaialbe? transferable to site? substitute required for inputs? time frame for shifting resource
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time frame
market period, short run, long run
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in the market period what happens
no time for producers to adjust to price change- supply perfectly inelastic
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short run
enough time ot adjust output by changing variable inputs but not fixed inputs- supply response in short run
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long run
enough time ot adjust output by adjusting all inputs since all inputs are variable in long run
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prices of other goods
cross elasticity of demand is percent change in quanityt demanded for one in response to price change of other
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income
income elasticity of demand is percent change
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low cross elasticity
weak subsitutes, lower price on one is little effect on other
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high cross elasticity
strong subsitute for each other
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flatter line
more elastic
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steeper line
more inelastic
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excise tax
consumers
49
pro rated business tax
producers
50
demand elastic - tax share is
not equal, conumer pays less
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