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Elasticity
answer
a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants
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absolute change
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new value - old value: Dollar value difference
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elasticity demand
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% change in quantity demanded / % change in price
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elasticity demand > 1
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elastic
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elasticity demand < 1
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inelastic
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What factors determine elasticity?
answer
Substitute Products
Proportion of Price Relative to Income
Time- short term v. long term
Luxury or a necessity?
Proportion of Price Relative to Income
Time- short term v. long term
Luxury or a necessity?
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unit elastic
answer
Elasticity equal to 1
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total revenue
answer
Price x Quantity
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income elastic
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if the income elasticity of demand for that good is greater than 1
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income inelastic
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if the income elasticity of demand for that good is less than 1 (but ≥0)
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marginal utility
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The change in total utility a person derives from consuming an additional unit of a good △ Utility/ △Q
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Law of Marginal Utility
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there is an inverse relationship between the quantity of a good and the marginal utility of that good
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Price Ceiling
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a maximum price that can be legally charged for a good or service
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Price floor
answer
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