| Term | Definition |
|---|
| elasticity | responsiveness or changeablity to one variable to a change in a second variable |
| price elasticity of demand (PED) | measure of responisveness of QD for a good w/ respect to a change in the price of a good |
| cross elasticity of demand (XED) | measure of the relative sensitivity of a change in the QD of a good w/ respect to a change in price of another good; measures closeness of substitutes and complements |
| income elasticity of demand (YED) | measures relative sensitivity of a change in the QD of a good w/ respect to a change in peoples income |
| normal goods | good that is positively related to income |
| inferior goods | good where QD falls as imcome rises ex: SPAM |
| price elasticity of supply (PES) | measures the responsiveness of firms to raising the QS due to a change in price |
| total revenue test of PED | the total income from a business activity during a time period; price X quantity sold |
| substitutes | goods where one good can take the place of another good; ex: DVD players have replaced VHS; POSITIVE |
| complements | goods where the consumption of one good leads to the consumption of another good; ex: tennis balls & tennis raquets; NEGATIVE |
| PED formula | %change in quantity demanded (-) / & change in price (+); ALWAYS NEGATIVE |
| XED formula | %change in QD (prod 1) / % change in P (prod 2) |
| YED formula | % change in QD / % change in income |
| PES formula | % change in quantity supplied / %chang in the price; ALWAYS POSITIVE |
Combine with other sets
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