AP Economics Chapter 4

How do changes over time affect elasticity >:?

Demand can be inelastic in the short term and become more elastic over a longer period of time.

demand curve

a graphical representation of a demand schedule

elasticity of demand

a measure of how consumer's react to a change in price

demand schedule

a table that lists the quantities of a good a person will buy at each price that may be offered in the market

market demand schedule

a table that lists the quantities of a good demanded by all consumers at each price that may be offered in the market

ceteris paribus

all other things held constant

inelastic

describes demand that is not very sensitive to a change in price

elastic

describes demand that is very sensitive to a change in price

unitary elastic

describes demand whose elasticity is exactly equal to 1

Provide a formula or numerical value: computation of elasticity of demand

elasticity is equal to the percentage change in quantity demanded divided by the percentage change in price

total revenue

the total amount of money a firm receives by selling goods or services. Determined by the price of goods and the quantity sold.

How elasticity affects a company's pricing

In an elastic demand, revenue rises as the price is lowered. As the price is raised, revenue falls. In an inelastic demand the revenue falls as the price is lowered and the revenue rises as the price rises.

How do necessities and luxuries affect elasticity >:?

A necessity is a good people will always buy (inelastic) even when the price increases. A luxury is a good people will consume less of (elastic) when the price increases.

How do substitutes affect elasticity >:?

The lack of substitutes can make demand inelastic while a wide choice of substitute goods can make demand elastic.

complements

goods that are bought and used together

substitutes

goods that are used in place of one another

inferior goods

goods whose demand falls as consumer income increases

normal goods

goods whose demand increases as consumer income increases

Provide a formula or numerical value: unitary elastic demand

if elasticity is exactly equal to 1 = 1

Provide a formula or numerical value: elastic demand

if elasticity is more than 1 >1

Provide a formula or numerical value: inelastic demand

if elasticity of demand for a good at a certain price is less than 1 1<

law of demand

states that when a good's price is lower, consumers will buy more of it

income effect

the change in consumption resulting from a change in real income