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