MODULE 3 Flashcards
(23 cards)
What is price of elasticity demand?
The extent to which consumers, and the quantity they demand, respond to a change in price
What is elastic demand?
Demand for which a percentage change in a products price causes a larger percentage change in quantity demanded
What is inelastic demand?
Demand for which a percentage change in a products price causes a smaller percentage change in quantity demanded
What is unit-elastic demand?
Percent change in quantity demanded equals percent change in price
What is perfectly elastic demand?
Demand for which a products price remains constant regardless of quantity demanded
What way is the demand curve for perfectly elastic demand?
Horizontal
What is perfectly inelastic demand?
Demand for which a products quantity demanded remains constant regardless of price
Which way is the demand curve for perfectly inelastic demand?
Vertical
What happens to revenues with elastic demand?
A price change causes total revenue to change in the opposite direction. They have an inverse relationship
What happens to revenues with inelastic demand?
A price change causes total revenue to change in the same direction. They have a direct relationship
What is total revenue?
The total income earned from a product, calculated by multiplying the products price by its quantity demanded
What are some factors that affect price elasticity of demand?
Portion of consumer incomes, access to substitutes, necessities vs. Luxuries, time
How does elasticity relate to the linear demand curve?
The linear demand curve is elastic at high prices, inelastic at low prices, and unit-elastic near its Center
What is income elasticity?
Measures how a products quantity demanded responds to changes in consumer income
What is the income elasticity for an inferior product?
Negative
What is the income elasticity for a normal product?
Positive
What is cross price elasticity?
Measures how quantity demanded of one product responds to a change in the price of another
What is price elasticity of supply?
Measures how quantity supplied responds to price changes
What is elastic supply?
Percent change in quantity supplied is more than percent change in price
What is inelastic supply?
Percent change in quantity supplied is less than percent change in price
What factors affect price elasticity of supply?
Immediate run, supply is perfectly elastic. Short run, supply may be either elastic or inelastic. Long run, supply in perfectly elastic in the case of constant cost, and very inelastic in the case of increasing cost
What is Karl Marx’s theory of exploitation?
A products value derives from the labour that goes into making it. Capitalists minimize workers wages and maximize the length of the work day. Capitalists keep the surplus value
