Elasticity
Elasticity Equation
% change Q/ % change P
Normal Good
A good for which there is a direct relationship between the demand for the good and the income; a good with a positive income elasticity of demand
Inferior good
A good for which there is an inverse relationship between the demand for the good and income; A good with a negative income elasticity of demand.
Income elasticity of demand
A measure of how responsive demand is to a change in consumer income
Elasticity
A measure of how responsive one variable is to a change in another variable.
Price Elasticity of Demand
A measure of how responsive quantity demanded is to a change in price.
Price Elasticity of supply
A measure of how responsive quantity supplied is to a change in price
Cross price elasticity of demand
A measure of the effect of a change in the price of one product on the quantity demanded of another
Perfectly elastic demand is a ___ line
Horizontal
Perfectly elastic demand
Infinite price elasticity of demand; quantity demanded that is so responsive to change in price that is price increase or decreases by 1%, quantity demanded decreases to zero.
Complements have a ___ cross price elasticity
Negative
Substitute have a ___ cross price elasticity
Positive
Elastic Demand
Price Elasticity of demand greater than 1 in absolute value; quantity demanded that is relatively sensitive to change.
Unit elastic demand
Price elasticity of demand equal to one in absolute value; price and quantities demanded change by equal percentages
Perfectly inelastic Demand
Price elasticity of demand equal to zero; quantity demanded is completely non responsive to price changes, such that and increase or decrease in price leases quantity demanded unchanged.
Inelastic demand
Price elasticity of demand less than one in absolute value; quantity demanded is relatively less sensitive to change
Total revenue equation
Price x quantity
Immediate Period
The time period in which producers cannot increase their use of economic resources to increase quantity supplied.
Long run
Time period in which all inputs can be changed.
Short run
Time period in which at least one input is fixed and others can be changed
Perfectly inelastic demand is a ___ line
Vertical
If demand is inelastic, total revenue?
decreases
If demand is elastic, total revenue?
increases
When you move from the top of the demand curve to the bottom of the demand curve, demand becomes more
inelastic