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Elasticity: measures of how much sellers and buyers respond to changes in…
Elasticity:
measures of how much sellers and buyers respond to changes in market conditions
Price elasticity of demand:
A measure of how much the quantity demanded of a good responds to a change in the price of the goods
Determinants
Necessities vs luxuries
Definition of the market
Availability to close substitutes
Time horizon
The variety of demand curves
Elastic Demand:
Quantity demanded does respond strongly to price changes
Inelastic Demand:
Quantity demanded does not respond strongly to price changes
Perfectly Inelastic:
Quantity demanded does not respond to price changes
Perfectly Elastic:
Quantity demanded changes infinitely with any price changes
Unit Elastic:
Quantity demanded changes by the same percentage as the price
Total Revenue and Price Elasticity of Demand
TR:
Amount paid by buyers and received by sellers of a goods
TR = P x Q
Inelastic demand curve- increase price leads to decrease quantity equal smaller. So, TR increases.
Elastic demand curve- increase price leads to decrease quantity demanded equal larger. So, TR decreases.
Other demand elasticities
Income elasticity of demand
measures how much Qd of a goods responds to a change in consumer's income
Normal Goods
Inferior Goods
Price elasticity of supply:
A measure of how much the quantity supplied of a good responds to a change in the price of the goods
Determinants
Ability of sellers to change the amount of the good they produce
Time period- more elastic in the long run