Word

Price elasticity of demand A measure of the consumer responsiveness to changes in price Pg. 112

Elastic demand When a consumer is very responsive to changes in price. Price is very important. Pg. 113

Inelastic demand When a consumer is not responsive to changes in price. Price is not very important. Pg. 113

*Both can be tested by the total revenue test or they can be tested mathematically.

Price elasticity of supply The calculation is the same as the Price Elasticity of Demand except in the case of supply we substitute the “% chg. in Quantity Supplied” for “% chg. in Quantity Demanded”. The results are viewed the same as well. A result of less than 1.0 is Inelastic Supply, and above 1.0 is Elastic Supply, and if it equals 1.0 it is Unit Elastic. In analyzing the impact of time on elasticity, we distinguish among the immediate market period, the short run and the long run. Measure of producer’s responsiveness to a change in price of a good. Pg. 120

Short run In micro economics is a period of time too short to change the plant capacity but long enough to use the fixed-sized plant more or less intensively. The farmer does have time in the short run to cultivate tomatoes more intensively by applying more labor and more fertilizer and pesticides to the crop. A production time period sufficiently short so as at least one input is fixed. Pg. 121 (to better understand Short Run, See Market Period on Pg. 120)

Long run a time period long enough for firms to adjust their plant sizes and for new firms to enter (or existing firms to leave) the industry. It is a time a time period long enough for people to react in major ways to a presumed demand, i.e. buy new equipment, change location, hire more people. A production time period sufficiently long so that all inputs have time to be variable. Pg. 121

Cross elasticity of demand is a measure of consumer responsiveness to changes in prices of other goods or related goods. Pg. 123

Immediate Market Period Time so...