Economics 6-16 - Chapter 6 Elasticity: The Responsiveness...

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Chapter 6 – Elasticity: The Responsiveness of Demand and Supply Cross-price elasticity of demand – The percentage change in quantity demanded of one good divided by the percentage change in the price of another good. Elastic demand – demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price, so the price elasticity is greater than 1 in absolute value. Elasticity – A measure of how much one economic variable responds to changes in another economic variable. Income elasticity of demand – A measure of the responsiveness of quantity demanded to changes in income, measured by the percentage change in quantity demanded divided by the percentage change in income. Inelastic demand – Demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price, so the price elasticity is less than 1 in absolute value Perfectly elastic demand. – demand is perfectly elastic when a change in price results in an infinite change in quantity demanded. Perfectly inelastic demand – demand is perfectly inelastic when a change in price results in no change in quantity demanded. Price elasticity of demand – The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product’s price. Price elasticity of supply – The responsiveness of the quantity supplied to a change in price, measured by dividing the percentage change in the quantity supplied of a product by the percentage change in the product’s price. Total revenue - The total amount of funds received by a seller of a good or service, calculated by multiplying price per unit by the number of units sold. Unit-elastic demand – Demand is unit-elastic when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value. Chapter 8 – Comparative Advantage and the Gains from International Trade Absolute advantage – the ability to produce more of a good or service than competitors when using the same amount of resources.
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Autarky – A situation in which a country does not trade with other countries Comparative advantage – The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers. Dumping – Selling a product for a price below its cost of production Exports – Goods and services produced domestically but sold to other countries External economies – Reductions in a firm’s costs that result from an expansion in the size of an industry Foreign direct investment – The purchase or building by a domestic firm of a facility in a foreign country Foreign portfolio investment – The purchase by an individual or firm of stocks or bonds issued in another country. Free Trade –
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This note was uploaded on 02/27/2008 for the course CHEM 025 taught by Professor X during the Fall '06 term at Lehigh University .

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Economics 6-16 - Chapter 6 Elasticity: The Responsiveness...

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