UNIT 1: what is elasticity of demand?
Vocab
- elasticity of demand- measure of how consumers react to a change
in price
- elastic demand- demand that is very sensitive to a change in
price. product is not a necessity. there are available substitutions. it
is always greater than 1
- inelastic demand- demand that is not very sensitive to a change in
price. product is a necessity. few or no substitutions. less than 1
- unitary elastic- equal to 1
- total revenue- total amount of money a company receives from
selling services.
- marginal revenue- additional income from selling one more unit of
a good
- fixed cost- cost that does not change no matter how much of a
product is produced.
- variable cost- cost that rises or falls depending upon how much is
produced
formulas
- TC=TVC+TFC
- ATC=AFC+AVC
- AFC=TFC/Q
- AVC=TVC/Q
- ATC=TC/Q
- TFC=AFC*Q
- TVC=AVC*Q
- MC=NEW TC - OLD TC
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