Microeconomics section 2.2 (Definitions)

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  • Created by: Amalie
  • Created on: 16-03-13 18:11
Price elasticity of demand
a measure of the responsiveness of the quantity demanded of a good or service when there is a change in its price.
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Elastic demand
where a change in the price of a good or service leads to a greater than proportional change in the quantity demanded of the good or service (PED would be greater than 1)
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Inelastic demand
where a change in the price of a good or service leads to a less than proportional change in the quantity demanded of the good or service. (PED would be less than one.)
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Cross price elasticity
a measure of the responsiveness of the demand for one good or service to a change in the price of another good or service.
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Income elasticity
a measure of the responsiveness of the demand for a good or service to a change in income.
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Normal good
a good where the demand for it increases as income increases.
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Inferior good
A good where the demand for it decreases as income increases and more superior goods are purchased
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Price elasticity of supply
a measure of the responsiveness of the quantity supplied of a good or service when there is a change in its price.
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Elastic supply
Where a change in the price of a good or service leads to a greater than proportional change in the quantity supplied of the good or service. (PES would be greater than one.)
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Inelastic supply
where a change in the price of a good or service leads to a less than proportional change in the quantity supplied of the good or service. (PES would be greater than one.)
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Indirect tax
a tax on expenditure. It is added to the selling price of a good or service.
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Flat rate tax (specific tax)
an indirect tax where a specific amount, e.g. $1, is added to the selling price of each unit.
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Ad valorem tax
an indirect tax where a percentage, e.g. 20%, is added to the selling price of each unit.
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Subsidy
an amount of money paid by the government to a firm, per unit of output.
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Card 2

Front

where a change in the price of a good or service leads to a greater than proportional change in the quantity demanded of the good or service (PED would be greater than 1)

Back

Elastic demand

Card 3

Front

where a change in the price of a good or service leads to a less than proportional change in the quantity demanded of the good or service. (PED would be less than one.)

Back

Preview of the back of card 3

Card 4

Front

a measure of the responsiveness of the demand for one good or service to a change in the price of another good or service.

Back

Preview of the back of card 4

Card 5

Front

a measure of the responsiveness of the demand for a good or service to a change in income.

Back

Preview of the back of card 5
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