Chapter 4 - Elasticity Flashcards
What is elasticity?
a measure of how much consumers and producers will respond to a change in market conditions
What is price elasticity of demand?
the size of the change in the quantity demanded of a good or service when its price changes
What is the mid-point method?
method that measures percentage change in quantity demanded (or quantity supplied) relative to a point midway between two points on a curve; used to estimate elasticity
What is perfectly elastic demand?
demand for which any increase in price will cause quantity demanded to drop to zero; represented by a perfectly horizontal line
What is perfectly inelastic demand?
demand for which quantity demanded remains the same regardless of price; represented by a perfectly vertical line
What is elastic?
demand that has an absolute value of elasticity greater than 1
What is inelastic?
demand that has an absolute value of elasticity less than 1
What is unit-elastic?
demand that has an absolute value of elasticity exactly equal to 1
What is total revenue?
the amount that a firm receives from the sale of goods and services; calculated as the quantity sold multiplied by the price paid for each unit
What is price elasticity of supply?
the size of the change in the quantity supplied of a good or service when its price changes
What is cross-price elasticity of demand?
a measure of how the demand for one good changes when the price of a different good changes
What is income elasticity of demand?
a measure of how much the demand for a good changes in response to a change in consumers’ incomes
