Adobe Ch. 4 Flashcards Preview

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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

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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))

5

elastic demand is always

negative, but think in absolute value

6

elastic demnd

demand is price elastic if speicific percent cahange in price reslts in larger percent change- Ed greater than 1

7

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

10

perfelc elastic demand

demand curve faced by price taking firm a

11

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

22

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

25

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

27

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

29

time

demand for product is more elastic the longer the time period under consideration- habit formation, product durability

30

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

32

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

35

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

37

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

40

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

48

excise tax

consumers

49

pro rated business tax

producers

50

demand elastic - tax share is

not equal, conumer pays less

51

inelastic demand- consumer pays

more,consumer bears all