elasticity Flashcards
(26 cards)
what is the ped equation
ped=change in QD/change in Price
if ped is more than 1
demand is price elastic
if ped is less than 1
demand is price inelastic
if ped is 0
demand is perfectly price inelastic
if ped is 1
demand is unit price elastic
ped definition
the price elasticity of demand is the measure of the responsiveness of a change in demand to a change in price
what is a subsidy
A subsidy is a payment from the government to a firm to lower the average cost an boost production of a good/service
how to workout TR
Total Revenue=price x quantity sold
income elasticity of demand definition
the responsivness of a change in demand to a change in income
what is the income elasticity of demand equation
YED=%change in QD/% change in price
what is an inferior good
inferior goods are those which see a fall in demand as income increases
normal good definition
demand increases as income increases YED>0
Luxury goods definition
an increase in income casues a abnormal increase in demand. YED>1
cross elasticity of demand definition
cross elasticty of demand is the responsivness of a change in demand of one good to a change in price of another good
what is the formula for cross elasticity of demand
XED = % change in QD of X/%change of y
what XED fo complematary good have
XED is negative ifm one good becomes more expensive the QD for both good fall
what is the XED of subistute goods
XED is positive, and the demand curve is upward-sloping
unrelated goods XED
XED is equal to 0
when does market failure occur
occurs when the free market fails to allocate resources to the best interests of society, so there is an inefficient allocation of scarce resources
what is an externality
the cost or benefit a third party recieves from an economic transaction outside of the market mechanism
what is marginal private cost
the cost to a firm of producing one extra unit
what is marginal social cost
the extra cost of society derived per extra unit consumed
how to calculate Msc
MSC=MEC+MPC
What gov policies can be put in place for -tive externalities
indirect taxes- to reduce the quantity consumed
subsidies- encourage consumption of merit goods
regulation-bans and age barries for consumption
information-no info failure
