Micro Chapter 6
Inferior Good
A negative income elasticity coefficient. Retread tires, cabbage, long distance bus tickets, used clothing, and muscatel wine are likely candidates, Consumers decrease their purchases of these as incomes rise.
Complementary Goods
Products and services that are used together. When the price of one falls, the demand for the other increases and conversely.
time
a determinant of price elasticity of demand
short run
a period of time too short to change plant capacity but long enough to use the fixed sized plant more or less intensively.
Long Run
a time period long enough for firms to adjust their plant sizes and for new firms to enter (or existing firms to leave) the industry.
own-price elasticity of demand
b
Unit elasticity
demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or quantity supplied is equal to the percentage change in price.
inelastic Demand
if a specific percentage change in price produces a smaller percentage change in quantity demanded, the demand is inelastic.
substitute goods
if cross elasticity of demand is positive, meaning that sales of X move in the same direction as a change in the price of Y, then X and Y are _______ goods.
Normal good
income elasticity coefficient is positive,e meaning that more of them are demanded as incomes rise.
Market Period
length of time over which producers are unable to respond to a change in price with a change in quantity supplied.
perfectly inelastic demand
product or resource demand in which price can be of any amount at a particular quantity of the product or resource that is demanded; when the quantity demanded does not respond to a change in price; graphs as a vertical supply curve.
Perfectly elastic demand
product or resource demand in which quantity demanded can be of any amount at a particular product or resource price; graphs as a horizontal demand curve.
Elastic demand
product or resource demand whose price elasticity of demand is greater than 1, so that any given percentage change in price leads to a larger percentage change in quantity demanded. as a result, quantity demanded is relatively sensitive to price.
Independent goods
products or services for which there is little or no relationship between the price of one and the demand for the other. when the price of ne rises or falls, the demand for the other tends to remain constant.
A determinant of Price Elasticity of demand
substitutability, proportion of income, luxuries vs. necessities, time.
price elasticity of supply
the ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price; a measure of the responsiveness of producers to change in the price of a product or resource.
Income elasticity of demand
the ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income; measures the responsiveness of consumer purchases to income changes.
Cross-price elasticity of demand
the ratio percentage change in quantity demanded of one good to the percentage change in the price of some other good. a positive coefficient indicates the two products are substitute goods; a negative coefficient indicates they are complementary goods
Midpoint formula
used for calculating elasticity. simply averages the two prices and the two quantities as the reference points for computing the percentages.