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AP Econ Chp 5
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Terms in this set (28)
Price elasticity of demand
The percentage change in quantity demanded divided by the percentage change in price
Elastic
When the percent change in quantity of a good is greater than the percent change in its price, the demand is said to be elastic. When elasticity of demand is greater than one, a fall in price increases the total revenue (expenditure) and a rise in price lowers the total revenue (expenditure).
Unitary elasticity
When the percentage change in the quantity of a good demanded equals percentage in its price, the price elasticity of demand is said to have unitary elasticity. When elasticity of demand is equal to one or unitary, a rise or fall in price leaves total revenue unchanged.
Inelastic
When the percent change in quantity of a good demanded is less than the percentage change in its price, the demand is called inelastic. When elasticity of demand is inelastic Or less than one, a fall in price decreases total revenue and .a rise in its price increases total revenue.
Income Elasticity of Demand
Measures how the quantity demanded changes as consumer income changes
Cross Elasticity of Demand
measures how sensitive consumer purchases of one product are to a change in the price of some other product
Necessities
inelastic demand, almost perfect inlestic
Luxieries
elastic demand
Substities
more elasticity, Substitute goods have a positive cross-price elasticity: as the price of one good increases, the demand for the other good increases
Complitments
Complementary goods have a negative cross-price elasticity: as the price of one good increases, the demand for the second good decreases
Supply Time
Supply is usually more elastic in the long run than in the short run. In more time, more workers can be hired and factors can be built
Demand is elastic
if the quantity demanded responds substantially to change in the price. elasticity is less than 1, so the quantity moves proportionately less than the price.
Demand is inelastic
if the quantity demanded responds only slightly to change in the price inelastic when the elasticity is less than 1, so the quantity moves proportionately less than the price.
Demand is Unit elasticity
if the elasticity is exactly 1, so quantity moves the same amount proportionately as price.
In elasticit Line
Steeper like an I, smaller price elasticity
Elastic line
Flatter like an E, the great the price elasticity demand
Perfectly inelastic-
demand curve is vertical and elastic is 0
Perfectly elastic-
the curve as the price elasticity of demand approaches infinity and demand curves becomes horizontal, reflecting the fact the very small changes in prince lend a huge changes in the quantity demanded
demand curve is vertical
Elastic
Greater than 1
Inelastic
less than 1
Perfect Inelastic
elasticity = 0, vertical fix for supply or demand
Perfect Elastic
E=infinity, horizontal demand curve
Unit Elastic
Elasticity=1, A type of elasticity where a given change in price causes a proportional change in quantity demanded.
Demand is linear, then price elasticity of demand is
Elastic in the upper portion and inelastic in the lower portion
Price Elastic of Demand formula
(Qd2-Qd1)/((Qd2+Qd1)/2)
(P2-P1)/((P2+P1)/2)
Price Elasticity of Supply formula
(Qs2-Qs1)/((Qds+Qs1)/2)
(P2-P1)/((P2+P1)/2)
Cross price Elasticity of demand
% change in Quantity demanded of good 1
% change in Quantity demanded of good 2
Income elasticity of Demand
(Qd2-Qd1)/((Qd2+Qd1)/2)
(I2-I1)/((I2+I1)/2)
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