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Set of flashcards Details
| Flashcards | 15 |
|---|---|
| Language | English |
| Category | Macro-Economics |
| Level | University |
| Created / Updated | 18.12.2016 / 26.12.2016 |
| Weblink |
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Measures the percentage change in quantity demanded of a good when ist price changes. / Theprice elasticity of demand (sometimes simply calledprice elasticity) measures how much the quantity demanded of a good changes when its price changes. The precise def nition of price elasticity is the percentage change in quantity demanded divided by the percentage change in price. The price elasticities of demand for individual goods are determined by the economic characteristics of demand. Price elasticities tend to be higher when the goods are luxuries, when substitutes are available, and when consumers have more time to adjust their behavior. By contrast, elasticities are lower for necessities, for goods with few substtutes, and for the short run.
Measures the percentage change in quantity supplied of a good when ist price changes. / More precisely, theprice elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.
Percentage change in quantity demanded is greater than percentage change in price (>1 or infinite)
Percentage change in quantity dtmanded is less than percentage change in price (<1 or 0)
Means that total revenue will not change when the price of the good changes. (=1)
Demand or supply is infinitely responsive to changes in price.
Demand or supply is not responsive at all to changes in price.
the multiplicative product of price and quantity sold. / is by def nition equal to price times quantity (orP Q ). If consumers buy 5 units at $3 each, total revenue is $15. If you know the price elasticity of demand, you know what will happen to total revenue when price changes: 1. When demand is price-inelastic, a price decrease reduces total revenue. 2. When demand is price-elastic, a price decrease ncreases total revenue. 3. In the borderline case of unit-elastic demand, a price decrease leads to no change in total revenue
the ultimative economic impact or burden of a tax. / The incidence of a tax denotes the impact of the tax on the incomes of producers and consumers. In general, the incidence depends upon the relative elasticities of demand and supply. (1) A tax is shifted forward to consumers if thedemand is inelastic relative to supply. (2) A tax is shiftedbackward to producers if supply is inelastic relative to demand.
Legal maximnm price that sellers can charge for a good or service as defined by government
legal minimum price that sellers can receive for a good or service as definded by governement.
Price elasticity of demand / E(D) = percentage change in quantity demanded : percentage change in price / E(D) = (Delta Q : ((Q1 +Q2)/2)) : (Delta P : ((P1 +P2)/2))
Elasticities cannot be inferred by slope alone. The general rule for elasticities is that the elasticity can be calculated as the ratio of the length of the straight-line
Restrictions on production are a typical example of government interference in individual markets. They often raise the income of one group at the expense of consumers. These policies are generally ineff cient: the gain to farmers is less than the harm to consumers
Supply and Demand: summary / lesson
There is a profound lesson here: Goods are always scarce. Society can never fulf ll everyone’s desires. In normal times, price itself rations the scarce supplies. When governments step in to interfere with supply and demand, prices no longer f ll the role of rationers. Waste, ineff ciency, and aggravation are likely companions of such interferences.
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