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for econ 200
Terms in this set (12)
Price of Elasticity of Demand
a measure of how
much the quantity demanded of a good responds to
a change in the price of that good, computed as the
percentage change in quantity demanded divided
by the percentage change in price.
Example of price elasticity of demand
If price goes up by 6% and the quantity demanded goes down by 3%, the price elasticity of demand is 0.5
How to calculate prie elasticity of demand
Numerator- the percentage change in quantity
Denominator- the percentage change in price
Price x Quantity
Cross Price Elasticity of demand
is a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good.
The Cross price elasticity of demand between Substitutes
Example of Cross price elasticity of demand between Substitutes
Suppose the price of tea rises
Percentage change in the price of tea is positive
Demand for coffee rises
Percentage change in the demand for coffee is positive
Therefore the cross price elasticity is positive
The cross price elasticity of demand between Complements
Example of The cross price elasticity of demand between Complements
Suppose the price of DVD players rises
-Percentage change in the price of DVD players is positive
-Demand for DVD's falls
-Percentage change in the demand for -DVD's is negative
-Therefore the cross price elasticity is negative
Income Elasticity of Demand
a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income.
If a good is a NORMAL good
then the income elasticity of demand is POSITIVE
If a good is an INFERIOR good
then the income elasticity is NEGATIVE
if a shortage for a product occurs
in the immediate run, is demand elastic?
What is the best description of the concept of a Price Taker
suppose that when a particular firm decreases its price its total revenue decreases. what kind of demand does this particular firm face.
Recommended textbook explanations
Krugman's Economics for AP*
David Anderson, Margaret Ray
Principles of Microeconomics
N. Gregory Mankiw
Paul Krugman, Robin Wells
Essentials of Investments
Alan J. Marcus, Alex Kane, Zvi Bodie
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Briefly explain the reason for the shape of a marginal revenue curve for a perfectly competitive firm.