Ch. 6: Elasticity - VOCAB

unit elasticity

a percentage change in price and the resulting percentage change in quantity demanded are the same

short run

a period of time too short to change plant capacity but long enough to use the fixed-sized plant more or less intensively

perfectly inelastic demand

a price change results in no change whatsoever in the quantity demanded

perfectly elastic demand

a small price reduction causes buyers to increase their purchases from zero to all they can obtain

inelastic demand

a specific percentage change in price produces a smaller percentage change in quantity demanded

elastic demand

a specific percentage change in price results in a larger percentage change in quantity demanded

long run

a time period long enough for firms to adjust their plant sizes and for new firms to enter (or existing firms to leave) the industry

midpoint formula

averages the two prices and the two quantities as the reference points for computing the percentages

price elasticity of supply

depends on how easily - and therefore quickly - producers can shift resources between alternative uses

price elasticity of demand

measure of the responsiveness (or sensitivity) of consumers to a change in price

cross elasticity of demand

measures how sensitive consumer purchases of one product (say, X) are to a change in the price of some other product (say, Y)

income elasticity of demand

measures the degree to which consumers respond to a change in their incomes by buying more or less of a particular good

immediate market period

the length of time over which producers are unable to respond to a change in price with a change in quantity supplied

total revenue (TR)

the total amount the seller receives from the sale of a product in a particular time period

total-revenue test

A test to determine elasticity of demand between any two prices: Demand is elastic if total revenue moves in the opposite direction from price; it is inelastic when it moves in the same direction as price; and it is of unitary elasticity when it does not change when price changes.