econ exam 2
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19 Terms
elastic demand/supply
|ED/S| > 1
% change in quantity demanded/supplied > % change in price
inelastic demand/supply
|ED/S| < 1
% change in price > % change in quantity demanded/supplied
unit elastic
|ED| = 1
perfect elasticity
horizontal line, ED = oo
perfect inelasticity
vertical line, ED = 0
5 determinants of price elasticity
competing products
specific brands
necessities
consumer search
time
midpoint formula
(x2 - x1)/(x2 + x1/2) X 100
price elasticity of demand formula
% change of quantity demanded/% change of price
total revenue
total amount received from buyers
total revenue formula
P x Q
cross price elasticity of demand
how responsive the demand for one good is to price changes for another good
cross price elasticity of demand formula
% change in quantity demanded/% change in the price of the other good
if cross price elasticity of demand is negative, are the goods complements or substitutes?
complements
if cross price elasticity of demand is positive, are the goods complements or substitutes?
substitutes
income elasticity of demand
how responsive the demand for a good is to change in income
income elasticity of demand formula
% change in quantity demanded/% change in income
if income elasticity of demand is negative, are the good normal or inferior?
inferior
if income elasticity of demand is positive, are the good normal or inferior?
normal
5 determinants of price elasticity of supply
inventories
availability of variable inputs
extra capacity
easy entry and exit to the market
time