Chapter 4: Elasticity Flashcards
Cross Elasticity of Demand
responsiveness of the demand for a good to a change in the price of a substitute or complement, other things remaining the same. It is calculated as the percentage change in the quantity demanded of the good divided by the percentage change in the price of the substitute or complement.
Elastic Demand
demand with a price elasticity greater than 1; other things remaining the same, the percentage change in the quantity demanded exceeds the percentage change in price.
Elasticity of Supply
responsiveness of the quantity supplied of a good to a change in its price, other things remaining the same.
Income Elasticity of Demand
responsiveness of demand to a change in income, other things remaining the same. It is calculated as the percentage change in the quantity demanded divided by the percentage change in income.
Inelastic Demand
demand with a price elasticity between 0 and 1; the percentage change in the quantity demanded is less than the percentage change in price.
Perfectly Elastic Demand
demand with an infinite price elasticity; the quantity demanded changes by an infinitely large percentage in response to a tiny price change.
Perfectly Inelastic Demand
demand with a price elasticity of zero; the quantity demanded remains constant when the price changes.
Price Elasticity of Demand
units-free measure of the responsiveness of the quantity demanded of a good to a change in its price, when all other influences on buyers’ plans remain the same.
Total Revenue
value of a firm’s sales. It is calculated as the price of the good multiplied by the quantity sold.
Total Revenue Test
method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in the price, when all other influences on the quantity sold remain the same.
Unit Elastic Demand
demand with a price elasticity of 1; the percentage change in the quantity demanded equals the percentage change in price.
