Studied by 7 peopleElasticities
How one variable responds to a change in another variable.
Cross-Price Elasticity of Demand
Measures how price change in one product affects Qd of another.
CPED
percentage change in Qd of good A
percentage change in Price of good B
Negative CPED
compliments
Positive CPED
Substitutes
IED stands for
Income Elasticity of demand
IED
% Change of quantity demanded /% change of in come
Negative IED
Inferior good
Positive IED
Normal good
Price elasticity of demand
Measures how a change in price affects quantity supplied.
PES
% Change in quantity supplied/% change in price
PES less than 1
Inelastic
PES equal to 1
Unit elastic
PES greater thank
Elastic
Relatively elastic supply
Percentage change in price causes a relatively larger change in quantity supply .
Relatively inelastic supply
Percentage change in price causes a relatively lesser change in quantity supplied.
Factors that determine price elasticity of supply
Input availability and time
Input availability
How easily can inputs be shifted in and out of production
Perfectly inelastic supply in a graph
Perfect vertical line ; an increase in price leaves the quantity supplied unchanged
Perfectly elastic supply in a graph
Perfect horizontal line; at x exact price, producers produce any quantity; at any price above x, quantity supplied is infinite; At any price below x, quality supplied is zero .
The government places higher taxes on goods more inelastic demand, this causes
Lower PED (price elasticity of demand )
Whoever has a more elastic curve, carries
A heavier tax burden
World trade is _ for consumers and _ for producers
Good; bad
Tariff
Per unit tax
Tariffs are good for
Domestic producers
Tariffs are bad for
Consumers
Markets with free world trade have no…
Shortage because it’s being filled with imports
Qs - Qd =
Imports
What happens to the consumer surplus in a market with a free world trade?
Increases
What happens to the producer surplus in a market with free world trade?
Decreases
What happens to the total surplus in a market with free world trade?
Increases
What happens to the consumer surplus in a market with free world trade and a tariff?
Decreases
What happens to the producer surplus in a market with a free world trade and a tariff?
Increases
What happens to the total surplus in a market with free world trade and a tariff?
Decreases
The Ws in a market with free world trade is
Elastic and has only one price
Note
Flashcard