lu 5 Flashcards
(13 cards)
elasticity
The measure of how responsive a dependent variable is to a change in an independent variable
PED
quantity demanded divided by price
formula: new -old divide by old X 100
arc
Q2-Q1 divide Q2+Q1 divide 2
divided by P2-P1 Divided by P2+P1 divided by 2
categories elasticity ped
-perfectly inelastic =0 quantity demanded doesn’t change
-inelastic = between 0 and 1 total revenue increases when p does
-unitarily elastic =1 %Q =%p total revenue decrease when price goes up
-elastic =bigger than 1
-Perfectly elastic is infinity any price increase leads to demand 0
3 statements
-If elasticity is less than 1, total revenue will change in the opposite direction to the price change
- If elasticity =1, it reaches maximum, and total revenue is unchanged
- If elasticity is bigger than 1, total revenue will change in the same direction as the price change
Determinants of PED
availability subs more =more elastic
complements more =inelastic
neccesity or luxury = inelstic and elastic
time period =longer time =more elastic
proportion of income =more money =more elastic
durabillity = elastic
more durable, more elastic
addiction habit forming goods inelastic
Income elasticity of demand
%QD divided by. %Y
formula :
new -old
divide by old X100
type of good income demand
normal above 0 income increase demand increase
inferior below 0 demand falls when income increases
neccesity between 0 and 1 income inelastic
Luxury above 1 income elastic
cross elasticity of demand
%QA divide %PB
fromula new -old divide old
relationship cross demand
subs bigger than 0
compements smaller than 0
unrelated = o
Price elastic supply
%Qs
divide by %p
formula: new -old divide by old
type of elasticty supply
perfectly inelastic =0
Inelastic is between 0 and 1
unitarily is 1
elastic is bigger than 1
perfectly elastci is infinity
