question
4 Factors that determine own price elasticity
answer
Necessity vs. Luxury
Time Frame
Price Relative to wealth and income
Number and quality substitutions
Time Frame
Price Relative to wealth and income
Number and quality substitutions
question
Own Price Elasticity
answer
A measure of the responsiveness of the quantity demanded of a good to a change in the price of that good; the percentage change in quantity demanded divided by the percentage change in the price of the good.
E=abs value %QuantityChange/%OwnPriceChange
E=abs value %QuantityChange/%OwnPriceChange
question
Elastic demand
answer
The quantity demanded is very responsive to changes in the price. E>1 Perfectly elastic horizontal graph
question
Inelastic demand
answer
The quantity demanded is not responsive to changes in price and people will buy relatively the same amount regardless of price. E<1 Perfect inelasticity vertical graph
question
Own Price elasticity and total revenue
answer
Total revenue=pricexquantity demanded
Inelastic demand-raise price, quantity demand falls less than the percent price rises, increase in revenue
Elastic demand-raise price, quantity demand falls more than the percent price increases, decrease in revenue
Inelastic demand-raise price, quantity demand falls less than the percent price rises, increase in revenue
Elastic demand-raise price, quantity demand falls more than the percent price increases, decrease in revenue
question
Demand shift variables
answer
Q1^D=D(p1lPr,I,N,T,E)
Pr:Price of related goods
I:Income
N: Number of Demanders
T:Tastes and preferences
E:expectations
Pr:Price of related goods
I:Income
N: Number of Demanders
T:Tastes and preferences
E:expectations
question
Cross Price Elasticity
answer
the percentage change in the quantity of Product A demanded compared with the percentage change in price in Product B
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