Economics 4

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  • Created by: Gabrielle
  • Created on: 29-12-13 16:51
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  • Elasticity
    • Elasticity of Supply
      • How much the quantity supplied responds to changes in the price
      • Inelastic: supply isn’t very responsive to changes in price
        • Closer to zero = more inelastic
      • Elastic: supply is responsive to changes in price
        • Closer to infinity = more elastic
      • Determinants
        • Mobility of factors of production
        • Time Period (long or short run)
        • Size of firm
      • Formula: % change in quantity supplied divided by the % change in price
    • Elasticity of Demand
      • Measures how quantity demanded responds to changes in the price
      • Inelastic: demand isn’t very responsive to changes in price
        • Closer to zero = more inelastic
      • Elastic: demand is responsive to changes in price
        • Closer to infinity = more elastic
      • Determinants
        • Availability of close substitutes
        • Necessities vs Luxuries
        • Definition of the market
        • Proportion of income devoted to product
      • Formula: % change in quantity demanded divided by the % change in price
    • Income elasticity of demand
      • How quantity demanded changes as consumer income changes
        • % change in quantity demanded divided by % change in income
    • Cross-price elasticity of demand
      • How quantity demanded of one good changes as the price of another good changes
        • % change in quantity demanded of good 1 divided by the % change in the price of good 2

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