# Chapter 5 Flashcards Preview

## Microeconomics > Chapter 5 > Flashcards

Flashcards in Chapter 5 Deck (14)
1
Q

elasticity

A

allows us to analyse supply and demand with greater precision
- a measure of how much buyers and sellers respond to changes in market conditions

2
Q

price elasticity of demand

A
• measure of how much the quantity demanded of a good responds to a change in the price of that good
• the percentage change in quantity demanded
3
Q

determinants

A
1. availability of close substitutes
2. necessities versus luxuries (necessities are inelastic, luxuries are elastic)
3. definition of the market (broad versus narrow categories)
4. time horizon
4
Q

Price elasticity of demand =

A

% change in quantity demanded / % change in price

5
Q

mid point method

A

price elasticity of demand:

Q2-Q1) / [(Q2+Q1)/2) / (P2-P1) / [(P2+P1)/2

6
Q

price inelastic demand

A

quantity demanded does not respond strongly to price changes

price elasticity of demand is less than one

7
Q

price elastic demand

A

quantity demanded responds strongly to price changes

price elasticity of demand is greater than one

8
Q

perfectly price inelastic

A

quantity demanded does not respond to price changes

9
Q

perfectly price elastic

A

quantity demanded changes infinitely with any change in price

10
Q

unit price elastic

A

quantity demanded changes by the same percentage as the price

11
Q

total revenue

A

the amount paid by buyers and received by sellers of a godd

12
Q

toral revenue formula and notes.. (3)

A

Total Revenue = P x Q

1. demand is inelastic, price and total expenditure move in the same direction
2. demand is elastic, price and total expenditure move in opposite directions
3. demand is unit elastic, total expenditure remains constant when the price changes
13
Q

income elasticity of demand

A

measure of how much the quantity demanded of a good responds to a change in consumers income

= percentage change in quantity demanded / percentage change in income

14
Q

price elasticity of supply

A

measure of how much the quantity supplied of a good responds to a change in the price of the good

= percentage change in quantity supplied/percentage change in price