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Elastic demand

elasticity is greater than 1

Inelastic demand

elasticity is less than 1

Perfectly elastic demand

demand in which quantity drops to zero at the slightest increase in price

Unit elastic demand

elasticity of 1

Perfectly inelastic demand

same quantity no matter the price

cross elasticity of demand

when changes in the price of one product affect the demand for another item

income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income

normal good

a good that consumers demand more of when their incomes increase

inferior good

a good that consumers demand less of when their incomes increase

Budget set

A budget set is the set of all

possible bundles of goods and

services that can be purchased with

a consumer’s income.

Consumer surplus

Consumer surplus is the difference

between the willingness to pay and

the price paid for the good.

Elasticity

Elasticity is the measure of

sensitivity of one variable to a

change in another

Price elasticity of demand

The price elasticity of demand

measures the percentage change in

quantity demanded of a good due

to a percentage change in its price.

Arc elasticity

The arc elasticity is a method of

calculating elasticities that measures

at the midpoint of the demand

range.

Opportunity cost

the loss of other alternatives when one alternative is chosen