Econ401 chapter 6
price elasticity of supply formula
% change in Q supplied/ % change in price
price elasticity of demand formula
% change in Q/ % change in P
cross price elasticity formula
% change in quantity demanded of one good / percentage change in price of another good
key determinants of the price elasticity of demand for a product
availability of close substitutes, passage of time, necessities versus luxuries, definition of the market, and share of the good in the consumer's budget
the demand for apples is
elastic
unit price elastic
if the price elasticity of demand is exactly equal to (negative) 1
cross price elasticity
measures the strength of substitutes or complement relationships between two goods
price elasticity of a brand will be (more or less) than that of the industry
more elastic (more narrowly defined)
complements have a ______ cross price elasticity of demand
negative
inferior goods (income elasticity of demand)
negative
horizontal demand illustrates
perfectly elastic
Vertical Demand illustrates
perfectly inelastic demand
substitutes have a ______ cross price elasticity of demand
positive
normal and a luxury good (income elasticity of demand)
positive and greater than 1
necessity and normal goods (income elasticity of demand)
positive but less than 1
Price elastic (#)
price elasticity of demand is larger than one
price inelastic (#)
price elasticity of demand is smaller than 1
most important determinant of price elasticity of demand
the availability of close subsitutes
why isn't elasticity just measured by the slope of the demand curve
the measurement of slope is sensitive the unites chosen for quantity and price
the main determinant of the price elasticity of supply
the passage of time
price elasticity of demand
the responsiveness of the quantity demanded to a change in price, measured by % change in quantity demanded of a product/ % change in the product's price
revenue
the total amount of funds received by a seller of a good or service, calculated by multiplying price per unit by the number of units sold.
unrelated products have a ______ cross price elasticity of demand
zero