Elasticity Flashcards
Midpoint method
Technique for calculating the percentage change, we calculate change in a variable compared with the average, or midpoint, of the starting and final values
Perfectly inelastic
When the quantity demanded does not respond at all to changes in the price. When demand is perfectly inelastic, the demand curve is a vertical line
Price elasticity of demand
Ratio of the prevent change in the quantity demanded to the percent change in the price as we move along the demand curve
Perfectly elastic
When any price increase will cause the quantity demanded to drop to 0. When demand is perfectly elastic the demand curve is a horizontal line
Elastic
Demand is elastic if the price elasticity of demand is greater than 1
Inelastic
Demand is inelastic if the price elasticity of demand is less than 1
Unit-elastic
Demand is unit-elastic if the price of demand is exactly 1
Total revenue
Total value of sales of a good/service. It is equal to the price multiplied by the quantity sold
Cross-price elasticity of demand
% change in quantity of A demanded / % change in price of B
Income elasticity of demand
% change in quantity demand / % change in income
Income elastic
Demand for good is income elastic if the income elasticity of demand for that good is greater than 1
Income inelastic
If the income elasticity of demand for that good is positive but less than 1
Price elasticity of supply
% change in quantity supplied / % change in price
Perfectly inelastic supply
When the price elasticity of supply is 0, so that changes in the price of the good have no effect on the quantity supplied. The supply curve is a vertical line
Perfectly inelastic supply
When even a tiny increase or reduction in the price will lead to very large changes in the quantity supplied, so that the price elasticity of supply is infinite, the supply curve is a horizontal line
