ECO130 - Topic 3

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Lea_
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ECO130 - Topic 3
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2015-03-19 03:55:05
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ECO130
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ECO130 - Topic 3 (5)
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  1. Price Elasticity of Demand
    The ratio of percentage change in the quantity demanded of a product to a percentage change in its price.
  2. Total Revenue
    The total number of dollars a firm earns from sales of a good or service.

    Revenue = price x demand
  3. Elastic Demand
    A condition in which the percentage change in quantity demanded is greater than the percentage change in price.

    Ed > 1
  4. Unitary Elastic Demand (Slope)
    A condition in which the percentage change in demand is equal to the percentage change in price.

    Ed = 1
  5. Inelastic Demand
    A condition in which the percentage change in quantity demanded is smaller than the percentage change in price.

    Ed < 1
  6. Perfectly Inelastic Demand (Vertical)
    A condition in which the quantity demanded does not change as the price changes.

    Ed = 0
  7. Perfectly Elastic Demand (Horizontal)
    A condition in which a small change in price brings about an infinite percentage change in quantity demanded.

    Ed = infinity
  8. Determinants of Price Elasticity of Demand
    • Availability of substitutes
    • Share of budget spent on the product
    • Adjustment to a price change over time
  9. Substitutes
    The price elasticity of demand is closely related to the availability of good substitutes for a good or service.

    Demand is more elastic for a product with close substitutes.

    When consumers have limited alternatives, the demand for a good or service is more price inelastic.
  10. Share of Budget Spent on the Product
    The price elasticity coefficient of demand is directly related to the percentage of one's budget spent on a good or service.
  11. Adjustment to a Price Change Over Time
    The price elasticity coefficient of demand is higher the longer a price change persists.
  12. Income Elasticity of Demand
    The ratio of the percentage change in the quantity demanded of a good or service to a given percentage change in income
  13. Cross-elasticity of Demand
    The ratio of the percentage change in the quantity demanded of a good or service to a given percentage change in the price of a related good or service.
  14. Price Elasticity of Supply
    The ratio of the percentage change in the quantity supplied of a product to the percentage change in its price.

    Es = Qs/P
  15. Tax Incicdence
    The share of tax ultimately paid for by consumers or by sellers.
  16. Impact of Taxation on Price Elasticity
    The imposition of tax on sellers of a product normally results in an increase in market price, which is less than the full amount of the tax.

    The burden of the tax is shared by the seller and buyer.

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