Chapter 5

Constant Elasticity Demand Curve

the type of demand that exists when price elasticity is the same everywhere along the curve; the elasticity value is unchanged

Unit Elastic

when the percentage change in price and quantity demanded are the same =1

Necessities

Income Elasticity<1

Luxuries

Income Elasticity>1

Linear Demand Curve

A straight-line demand curve; such a demand curve has a constant slope but usually has a varying price elasticity

Perfectly Inelastic Supply Curve

Refers to a price elasticity of supply value of zero, and arises in the case of a vertical supply curve.

Cross Price Elasticity of Demand

A measure of responsiveness of quantity demanded of good X to a change in the price of good Y; Negative sign will imply complements and a positive sign implies substitutes.

Elastic Demand

A situation in which consumer demand is sensitive to changes in price >1

Inelastic Demand

Describes demand that is not very sensitive to a change in price <1

Unit Elastic Demand Curve

Everywhere along the demand curve, the percentage change in price causes an equal but offsetting percentage change in quantity demanded, so total revenue remains the same; the elasticity has an absolute value of 1.0

Inferior Goods

Income Elasticity<0

Total Revenue

Price x Quantity

Perfectly Elastic Demand Curve

Refers to a price elasticity of demand value of infinity, and arises in the case of a horizontal demand curve.

Perfectly Elastic Supply Curve

Refers to a price elasticity of supply value of infinity, and arises in the case of a horizontal supply curve.

Perfectly Inelastic Demand Curve

Refers to a price elasticity of supply value of zero, and arises in the case of a vertical demand curve.

Unit Elastic Supply

The quantity supplied changes at the same rate as the price, 1

Elastic Supply

When a small change in price causes a major change in the quantity supplied >1

Income Elasticity of Demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

Price Elasticity of Demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

Price Elasticity of Supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

Elasticity

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

Unit-Elastic SUpply Curve

a percentage change in price causes an identical percentage change in quantity supplied; depicted by a supply curve that is a straight line from the origin

Inelastic Supply

exists when a change in a good's price has little impact on the quantity supplied <1