Elasticity Econ

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7 Terms

1
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Define price elasticity of demand (PED).

A measure of how responsive buyers are to price changes

2
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Difference between elastic and inelastic demand.

Elastic demand: Buyers are very responsive to price changes (|PED| > 1). Inelastic demand: Buyers are not responsive to price changes (|PED| < 1).

3
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Determinants of price elasticity of demand.

  1. Availability of substitutes 2. Category of product 3. Necessities vs. luxuries 4. Time to search for alternatives 5. Share of budget.

4
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Define total revenue and its relation to elasticity.

Total Revenue = Price × Quantity. If demand is elastic

5
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Define cross-price elasticity of demand.

Measures how the demand for one good responds to a price change of another good. Positive → Substitutes. Negative → Complements.

6
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Define income elasticity of demand.

Measures how demand changes as income changes. Positive → Normal goods. Negative → Inferior goods.

7
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Define price elasticity of supply.

Measures how responsive the quantity supplied is to price changes.