Essentials of Economics: Chapter 5

income-elastic

the demand for a good is income-elastic if the income elasticity of demand for that good is greater than 1

total revenue

the total value of sales of a good or service. it is equal to the price multiplied by the quantity sold.

perfectly elastic

when any price increase will cause the quantity demanded to drop to zero. when demand is perfectly elastic, the demand curve is a horizontal line.

perfectly elastic 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. a perfectly elastic supply curve is a horizontal line.

price elasticity of a supply

a measure of the responsiveness of the quantity of a good supplied to the price of that good. it is the ratio of the percent change in the quantity supplied to the percent change in the price as we move along the supply curve.

midpoint method

a technique for calculating the percent change. in this approach, we calculate changes in a variable compared with the average, or midpoint, of the starting and final values.

elastic

demand is elastic if the price elasticity of demand is greater than 1

unit-elastic

if the price elasticity of demand is exactly 1

inelastic

if the price elasticity of demand is less than 1

price elasticity of demand

is the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve.

cross-price elasticity of demand

the cross-price elasticity of demand between two goods measures the effect of the change in one good's price on the quantity demanded of the other good. it is equal to the percent change in the quantity demanded of one good divided by the percent change in the other good's price.

income-inelastic

the demand for a good is income-inelastic if the income elasticity of demand for that good is positive but less than 1

income elasticity of demand

the percent change in the quantity of a good demanded when a consumer's income changes divided by the percent change in the consumer's income.

perfectly inelastic supply

when the price elasticity of supply is zero, so that changes in the price of the good have no effect on the quantity supplied. a perfectly inelastic supply curve is a vertical line.

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.