ECON CH 4

Short-run supply refers to

the response of the quantity supplied to a price change after some of the technologically feasible adjustments in production have been made

Momentary supply refers to

the response of the quantity supplied to a price change at the instant that the price changes

income elasticity of demand measures...

the responsiveness of demand to a change in income, other things remaining the same. For a normal good, the income elasticity of demand is positive. For an inferior good, the income elasticity of demand is negative.

Cross elasticity of demand measures

the responsiveness of the demand for one good to a change in the price of a substitute or a complement, other things remaining the same

elasticity is a measure of

the responsiveness of the quantity demanded of a good to a change in its price, other things remaining the same.

Elasticity of supply measures

the responsiveness of the quantity supplied of a good to a change in its price, other things remaining the same

Price elasticity of demand depends on

how easily one good serves as a substitute for another the proportion of income spent on the good, and the length of time elapsed since the price change.

elastic demand

In economics, the demand elasticity (elasticity of demand) refers to how sensitive the demand for a good is to changes in other economic variables, such as prices and consumer income. Demand elasticity is calculated as the percent change in the quantity demanded divided by a percent change in another economic variable. A situation in which consumer demand is sensitive to changes in price Between unit elastic demand and perfectly elastic demand is another general case in which the percentage change in the quantity demanded exceeds the percentage change in price. In this case, the price elasticity of demand is greater than 1 and the good is said to have an elastic demand. Automobiles and furniture are examples of goods that have elastic demand.

inelastic demand

Inelastic demand in economics is when people buy about the same amount whether the price drops or rises A situation in which an increase or a decrease in price will not significantly affect demand for the product

total revenue

Price x Quantity

if demand is inelastic

a cut in price leads to a decrease in total revenue

if demand is elastic...

a cut in price leads to an increase in total revenue. If demand is unit elastic, a cut in price leaves total revenue unchanged

income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income % change in quantity demanded / % change in income

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price % change in quantity demanded / % change in price

elasticity of supply

a measure of the way quantity supplied reacts to a change in price %change in quantity supplied/%change in price

total revenue test

a method of measuring elasticity by comparing total revenues is a method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in the price, when all other influences on the quantity sold remain the same. If a price cut increases total revenue, demand is elastic. If a price cut decreases total revenue, demand is inelastic. If a price cut leaves total revenue unchanged, demand is unit elastic.

unit elastic demand

demand is unit elastic when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value If the percentage change in the quantity demanded equals the percentage change in the price, then the price elasticity equals 1 and the good is said to have a unit elastic demand.

Supply decisions have three time frames which are

momentary, short run, and long run.

The cross elasticity of demand with respect to the price of a complement is

negative

Long-run supply refers to the response

of the quantity supplied to a price change when all the technologically feasible adjustments in production have been made

price elasticity of demand equals

percentage change in the quantity demanded --------------------------------------------------- the percentage change in the price.

The cross elasticity of demand with respect to the price of a substitute is

positive

The elasticity of supply is usually

positive and ranges between zero (vertical supply curve) and infinity (horizontal supply curve)

perfectly inelastic demand

the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero

perfectly elastic demand

the case where the quantity demanded is infinitely responsive to price and the price elasticity of demand equals infinity

the larger the magnitude of the price elasticity demand...

the greater is the responsiveness of the quantity demanded to a given price change

When the income elasticity of demand is less than 1 (income inelastic or inferior)...

the percentage of income spent on the good decreases as income increases

When the income elasticity of demand is greater than 1 (income elastic)...

the percentage of income spent on the good increases as income increases.

cross elasticity of demand

when changes in the price of one product affect the demand for another item a measure of the responsiveness of the demand for a good to a change in the price of a substitute or complement, other things remaining the same.