Chapter 4 Econ 2020

Elasticity

A measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

Inelastic

Describes quantity demand that is not very sensitive to a change in price

Price Elasticity of Demand

is a measure of the responsiveness or sensitivity of quantity demanded to changes in the price of a product

Perfectly Inelastic Demand

means that a change in price results in no change in quantity demanded of a product,

Perfectly elastic demand

means that a small change in price causes buyers to purchase all they desire of a product.

Cross Elasticity of Demand

measures the degree to which the quantity demanded of one product is affected by a change in the price of another product. 1.positive for products that are substitutes; 2.negative for products that are complements; and 3.zero or near zero for products that are unrelated or independent

Unit elasticity

occurs when the percentage change in quantity demanded is equal to the percentage change in price. The elasticity coefficient is equal to 1.

Elastic

occurs when the percentage change in quantity demanded is greater than the percentage change in price. The elasticity coefficient is greater than 1.

Inelastic

occurs when the percentage change in quantity demanded is less than the percentage change in price. The elasticity coefficient is less than 1.

Total Revenue (TR)

_________ changes when price changes. The total-revenue test shows that when demand is

Income Elasticity of Demand

_________________ measures the effect of a change in income on the quantity demanded of a product. 1.positive for normal, which means that more of them are demanded as income rises; and 2.negative for inferior products, which means that less of them are demanded as income rises.