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C4

Terms in this set (59)

Elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants
Some goods tend to be more price elastic than others i.e. a change in price has a
proportionally larger change in quantity demanded
Price elasticity of demand
a measure of the sensitivity of demand to changes in price
PED =
% change in quantity demanded / % change in price
A more elastic demand curve is
shallower
PED > 1
elastic - demand for an item will change more than proportionately to a change in price
PED < 1
inelastic - demand for an item will change less than proportionately to a change in price
PED = 1
unit elastic - price and quantity demanded change by the same proportion e.g. rise in price of 1% causes a change in quantity demanded of 1%
What determines PED
1) Number and closeness of substitutes
2) Proportion of income spent on a good
3) Time period
More substitutes there are the more people will ...
switch to alternatives as the price rises, so it leads to a higher PED
Number of substitutes is impacted by how broad a market there is ..
broader it is tends to be less close substitutes
Higher proportion of income spent on a good, the more ....
consumption is cut when price rises, so bigger income effect and is more elastic
Over a longer time period after a price change the more ... demand is as people have time to adjust their consumption patterns
elastic
Total expenditure =
Price x Quantity
Total revenue =
Price x Quantity
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