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Elasticity (The Price Elasticity of Demand and Its Determinants
(Demand…
Elasticity
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Total Revenue
- the amount paid by buyers and received by sellers of a good
TR = P X Q
- With an inelastic demand curve, an increase in price leads to a decrease in quantity that is proportionately smaller
- Total revenue increases
- With an elastic demand curve, an increase in the price leads to a decrease in quantity demanded that is proportionately larger
- Total revenue decreases
Income Elasticity
Types of Goods
- Normal Goods ( When higher income, the quantity demanded for normal goods will be raises)
- Inferior Goods (When higher income, the quantity demanded for inferior goods will be lowers)
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Price Elasticity of Demand
- measure of how much the quantity demanded of a good responds to a change in the price of that good
Price Elasticity of Supply
- measure of how much the quantity supplied of a good responds to a change in the price of that good
Calculation the price elasticity of demand = Percentage change in quantity demanded / Percentage change in price
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Calculation of income elasticity of demand = Percentage change in quantity demanded / Percentage change in income
Calculation the cross- price elasticity of demand = % change in quantity demanded of good 1 / % change in price of good 2
Calculation the price elasticity of supply = Percentage change in quantity supplied / Percentage change in price