Econ Chapter 5

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Author:
misol
ID:
269607
Filename:
Econ Chapter 5
Updated:
2014-04-07 14:33:44
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Economics Shah Chapter
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Econ chapter 5
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  1. Price Elasticity of Demand
    • measure of how quantity demanded of goods responds to a change in the price of good
    • % change quantity demanded over % change in change in price
  2. Midpoint Method Formula
  3. Total Revenue
    Amount paid by buyers and received by sellers of a good (P x Q)
  4. Inelastic Demand and Total Revenue
    • occurs when a buyer does not respond at all to a price of change of that good or a service
    • ie demand for gasoline in very short run, stamps, salt

    P up TR up
  5. Unit Elastic Demand and Total Revenue
    When demand is unit elastic, whatever changes in the price will not impact total revenue (total revenue remains the same)

    P up TR same
  6. Elastic Demand and Total Revenue
    When demand in unit elastic, they will be inverse

    • P up TR down
    • P down TR up
  7. Negative Income Elasticity “Good is Inferior"
    • occurs when good is an inferior good ie ramyun noodles
    • Y up D down
    • Y down D up
  8. Positive Income Elasticity “Good is Normal"
    • occurs when good is a normal good
    • ie t bone steak
    • Y up D up
    • Y down D down
  9. Cross price elasticity is negative when 2 goods are compliments
    • x and y goods are complementary goods
    • x is bagels y is cream cheese
    • price in x go up, demand in y goes down
    • price in y goes down, demand in x goes up
  10. Cross price elasticity is positive when “2 goods are substitutes
  11. Cross-Price Elasticity of Demand Formula
    • % change in demand of x good over % change in price of y good
    • (mid point formula)
  12. Price Elasticity of Supply
    • Measures how much the quantity supplied of a good responds to change or price of a good 
    • (the strength of seller's response to a price change)

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