AGEC 105 Chapter 5

Income Elasticity

a measure of the relative response of demand to income changes

Cross-price Elasticity

a measure of the response of consumption of a good or service to changes in the price of another good or service

Perfectly Elastic Demand

a perfectly elastic demand curve is parallel to the horizontal or quantity axis

Perfectly Inelastic Demand

a perfectly inelastic demand curve is perpendicular to the horizontal or quantity axis

Inferior Good

goods for which consumption falls (rises) when income increases (decreases)

Normal Good

goods for which consumption rises (falls) when income increases (decreases)

Complements

goods for which cross-price elasticities are negative

Independent Goods

goods whose consumption is independent from the consumption of goods

Luxuries

normal goods whose income elasticity exceeds one

Necessity

normal goods whose income elasticity is less than one

Substitutes

the cross-price elasticity of demand is positive

Unitary Elastic

the demand curve is unitary elastic where the percentage change in quantity is identical to the percentage change in price

Inelastic Demand

the inelastic nature of the demand curve for raw agricultural products, when combined with a bumper crop and rising imports, drives down the price of these commodities

Own-Price Elasticity of Demand

a measure of the relative response of consumption of a good or service to changes in price

Elastic

a demand or supply curve is said to be elastic if the percentage change in quantity is greater than a given percentage change in price

Inelastic

a demand or supply curve is said to be inelastic if the percentage change in quantity is less than a given percentage change in price

Point Elasticity

a measure of elasticity at a given point on a demand curve

Arc Elasticity

a measure of elasticity between two distinct points on a demand curve