Microeconomics Chapter 3
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15 Terms
Elasticity
measures how much quantity changes when another factor changes.
Price Elasticity of Demand (Ed)
Measures how much quantity demanded changes when price changes.
% change in Qd demanded ÷ % change in price.
Elastic demand
quantity demanded changes more than the percentage change in price.
Elasticity > 1
Example: Price ↑ 10% → quantity demanded ↓ 20%.
Inelastic Demand
quantity demanded changes less than proportionally to price.
Price ↑ 10% → quantity demanded ↓ 5%.
Unit Elastic Demand
quantity demanded changes by the same percentage as the price.
Elasticity = 1
Example: Price ↑ 10% → quantity demanded ↓ 10%.
Perfectly Inelastic Demand
quantity demanded doesn't change when price changes.
Perfectly Elastic Demand
quantity demanded changes infinitely in response to any price change
quantity demanded drops to zero from any price increase.
Total Revenue
the total money a seller receives from selling a good.
Formula: TR = Price × Quantity sold
Price Elasticity of Supply (Es)
measures how much quantity supplied changes when price changes.
% change in Q supplied ÷ % change in P.
When prices change, how does that affect quantity supplied
Income Elasticity of Demand
measures how much quantity demanded changes when income changes.
% change in Qd demanded ÷ % change in income.
When income(money) changes, how does it affect demand(how much I buy)?
Normal Good
a good people buy more of when their income increases.
demand increases when income increases.
Inferior Good
a good people buy less of when their income increases.
Demand decreases when income increases.
Cross-Price Elasticity of Demand
measures how the price of one good affects the quantity demanded of another good.
% change in quantity demanded of Good A ÷ % change in price of Good B.
tellls whether it substitute or complement
Substitutes
Goods that satisfy a similar need, so people can swap one for the other.;
complemets
goods that are used together.
Example: Jelly and peanut butter.
Jelly price ↑ → demand for peanut butter ↓.