Econ 1 Key Terms

NAME: Chabelita Cuer Atazar COURSE: BSBA I MARKETING
INSTRUCTOR: Merlyn Torres
KEY TERMS
Price Elasticity OF Demand
The price elasticity of demand is calculated as the percentage change in quantity
divided by the percentage change in price. Therefore, the elasticity of demand between
these two points is 6.9%−15.4% which is 0.45, an amount smaller than one, showing
that the demand is inelastic in this interval.
Formula:
dQ/Q
e (ρ)=
dP /P
e ( p) = price elasticity
Q = quantity of the demanded good
P = price of the demanded good
Elastic Demand
Price is one of the five determinants of demand, but it doesn't affect the demand
for all goods and services equally. When price heavily affects demand, that Good or
service is said to have "elastic demand”. The name comes from the way economists
think about the demand for that good or service it stretches easily, and a slight price
change results in massive changes to demand.
Inelastic Demand
An inelastic product, on the other hand, is defined as one where a change in
price does not significantly impact demand for that product.
Should demand for a good or service be static when its price or other factor changes, it
is said to be inelastic. In other words, when the price changes or consumer's incomes
change, they will not change their buying habits.
Unit Elasticity
In economics, unit elastic (also known as unitary elastic) is a term that describes
a situation in which a change in one variable results in an equally proportional change in
another variable. In this context, elasticity indicates the sensitivity of one variable in
response to the changes in another variable. Because a change in the price of goods
causes a same percentage change in the quantity demanded, or supplied, the elasticity
of demand is equal to -1 (Ed = -1),and the unit elasticity of supply is equal to 1 (Es = 1).
Perfectly Inelastic Demand

Perfectly inelastic demand means that prices or quantities are fixed and are not
affected by the other variable. Unitary demand occurs when a change in price causes a
perfectly proportionate change in quantity demanded.
Perfectly Elastic Demand

That quantity demanded will increase to infinity when the price decreases, and
quantity demanded will decrease to zero when price increases. When consumers are
extremely sensitive to changes in price, you can think about perfectly elastic demand as
“all or nothing.” For example, if the price of cruises to the Caribbean decreased,
everyone would buy tickets (i.e., quantity demanded would increase to infinity), and if
the price of cruises to the Caribbean increased, not a
single person would be on the boat (i.e., quantity
demanded would decrease to zero
Total Revenue (TR)

The total flow of income to a firm from selling a given quantity of output at a given price,
less tax going to the government. The value of TR is found by multiplying price of the
product by the quantity sold.
FORMULA:
Total-Revenue Test
A total revenue test approximates the price elasticity of
demand by measuring the change in total revenue from a
change in the price of a product or service. Price elasticity refers to the
extent to which the price of a product or service affects consumer demand for it; when
the price affects demand, the price is said to be elastic, but when it does not or does not
to a lesser degree, it is said to be inelastic. The total revenue test assumes all other
factors that may influence revenue will remain constant during the testing period.
Price Elasticity OF Supply

The price elasticity of supply (PES) is the measure of the responsiveness in
quantity supplied (QS) to a change in price for a specific good (% Change QS / %
Change in Price). There are numerous factors that directly impact the elasticity of
supply for a good including stock, time period, availability of substitutes, and spare
capacity. The state of these factors for a particular good will determine if the price
elasticity of supply is elastic or inelastic in regards to a change in price.
The price elasticity of supply has a range of values:
 PES > 1: Supply is elastic.
 PES < 1: Supply is inelastic.
 PES = 0: The supply curve is vertical; there is no response of demand to prices.
Supply is “perfectly inelastic.”
 PES = ∞∞ (i.e., infinity): The supply curve is horizontal; there is extreme change
in demand in response to very small change in prices. Supply is “perfectly
elastic.”
Market Period
Market period is a very short period in which supply being fixed, price is
determined by demand. The time period is of a few days or weeks in which the supply
of a commodity can be increased out of a given stock to match the demand
Short Run
The short run is a concept that states that, within a certain period in the future, at
least one input is fixed while others are variable. The short run does not refer to a
specific duration of time but rather is unique to the firm, industry or economic variable
being studied.
Long Run
The long run is a period of time in which all factors of production and costs are
variable. In the long run, firms are able to adjust all costs, whereas in the short run firms
are only able to influence prices through adjustments made to production levels.
Additionally, while a firm may be a monopoly in the short term, they may expect
competition in the long run.
Cross Elasticity OF Demand
The cross elasticity of demand for substitute goods is always positive because the
demand for one good increases when the price for the substitute good increases.
Alternatively, the cross elasticity of demand for complementary goods is negative
Income Elasticity OF Demand

Income Elasticity of Demand (YED) is defined as the responsiveness of demand
when a consumer's income changes. For example, if a person experiences a 20%
increase in income, the quantity demanded for a good increased by 20%, then the
income elasticity of demand would be 20%/20% = 1. This would make it a normal good.

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NAME: Chabelita Cuer Atazar COURSE: BSBA I MARKETING

INSTRUCTOR: Merlyn Torres

Q = quantity of the demanded good

P = price of the demanded good

Perfectly Inelastic Demand

Perfectly Elastic Demand

Total Revenue (TR)

Price Elasticity OF Supply

Cross Elasticity OF Demand

Income Elasticity OF Demand

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