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Elasticity

Terms in this set (7)

elasticity
the relative change in quantity given a relative change in price - can be measure for both demand and supply
price elasticity of demand
the relative change in quantity demand of a certain product given a relative change in the price of that product
value in knowing PED?
firms can use it to set pricing strategies
governments can use it to set taxing strategies
determinants of PED?
number and closeness of substitutes
necessity vs. luxury
length of time to make purchase decision
proportion of income spent on purchase
inelastic demand
describes a demand curve where consumers are relatively not that sensitive to changes in price

given a change in price, quantity demanded changes relatively less
elastic demand
describes a point on a demand curve where consumers are relatively sensitive to changes in price

given a change in price, quantity demanded changes relatively more
is elasticity constant along a demand curve?
technically, no

elasticity can vary along a demand curve - because we are looking at the effects of elasticity at particular prices, we often will refer to 'elastic demand' or 'inelastic demand' when we should be saying 'elastic demand at that price' or 'inelastic demand at that price'

(this is something you should be familiar with, but will not be an important point of emphasis)
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