Chapter 4 Microeconomics

Measure of the responsiveness of buyers and sellers to changes in price or income. Price doesn't matter=inelastic.

Price DOES matter=elastic. Elasticity is flat (horizontal) while Inelasticity is vertical (Up and Down).

Existence of subsititutes, share of the budget spent on a good, whether the good is a necessary or a luxury good, how broadly defined the market is, and time.

A period of time when consumers can partially adjust their behavior. In the short run, we make decisions that reflect our immediate or short-term wants, needs, or limitations.

A period of time when consumers have time to fully adjust to market conditions. In the long run, we make decisions that reflect our wants, needs, and limitations over a long time horizon.

ED= % change in the quantity demanded/ percentage change in price (Whenever the percentage change in the quantity demanded is larger than the percentage change in price, the demand is elastic).

(Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2]

change in Q/ average value of Q// change in P/ Average value of P

Amount that a firm receives from the sale of goods and services. Total revenue for a particular good is calculated by multiplying the price of the good by the quantity of the good that is sold.

Measures the responsiveness of the quantity demanded of one good to a change in the price of a related good.