Specialization
An individual or business focuses on producing one product and trades for other products they want
1/13
| Term | Definition |
|---|---|
| Specialization | An individual or business focuses on producing one product and trades for other products they want |
| What are the 5 demand shifters? | 1. Preferences 2. Number of buyers 3. Income 4. Price of related goods 5. Expectations |
| Elasticity | Relates the percent change in one variable to the percent change in another variable |
| Price Elasticity of Demand and formula | - The percent change in the quantity demanded for a 1 percent increase in price - Elasticity of Demand = % Change in Q / % Change in P - Q is Quantity Demanded and P is the Price - Outputs a negative value because of the Law of Demand |
| When |Elasticity of Demand| > 1, the Price Elasticity of Demand is _ When |Elasticity of Demand| < 1, the Price Elasticity of Demand is _ | elastic; inelastic |
| If you use the midpoint method instead, then the Price of Elasticity of Demand is the same whether you use _ to calculate it | a price increase or a price decrease; |
| Income elasticity and formula | - The percent change in the quantity demanded for a 1 percent increase in income - Income Elasticity = % Change in Q / % Change in I - Q is Quantity Demanded and I is Income |
| Normal Good Income Elasticity: Income Elasticity greater/less than _ Inferior Good Income Elasticity: Income Elasticity greater/less than _ | greater than 0; less than 0 |
| Cross-Price Elasticity and formula | The percent change in the quantity demanded for a 1 percent increase in the price of another, related good - Elasticity of Apples for Bananas = % Change in Q of A / % Change in P of B |
| Substitutes Cross-Prce Elasticity: Cross-Price Elasticity: Elasticity of A for B greater/less than _ Complements Cross-Prce Elasticity: Cross-Price Elasticity: Elasticity of A for B greater/less than _ | greater than 0; less than 0 |
| What are the 4 factors that afect the Price Elasticity of Demand? | 1. Availability of Close Substitutes 2. Expenditure Share - Necessities vs. Luxuries 3. Definition of the Market 4. Time Horizon |
| Market Supply | The amount of a good or service sellers are willing to sell |
| What are 5 examples of supply shifters? | 1. Price of inputs 2. Number of sellers 3. Technology 4. Government policies (taxes, subsidies, regulations) 5. Expectations |