Ch.4 Elasticity

long run

(1) In microeconomics, a period of time long enough to enable producers of a product to change the quantities of all the resources they employ; period in which all resources and costs are variable and no resources or costs are fixed. (2) In macroeconomics, a period sufficiently long for nominal wages and other input prices to change in response to a change in a nation's price level.

short run

(1) In microeconomics, a period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources (usually plant) are fixed and some are variable. (2) In macroeconomics, a period in which nominal wages and other input prices do not change in response to a change in the price level.

midpoint formula

A method for calculating price elasticity of demand or price elasticity of supply that averages the two prices and two quantities as the reference points for computing percentages.

market period

A period in which producers of a product are unable to change the quantity produced in response to a change in its price and in which there is a perfectly inelastic supply.

total-revenue test

A test to determine elasticity of demand between any two prices: Demand is elastic if total revenue moves in the opposite direction from price; it is inelastic when it moves in the same direction as price; and it is of unitary elasticity when it does not change when price changes.

unit elasticity

Demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or supplied is equal to the percentage change in price.

elastic, inelastic

Elasticity varies at different price ranges on a demand curve, tending to be BLANK in the upper-left segment and BLANK in the lower-right segment. Elasticity cannot be judged by the steepness or flatness of a demand curve.

elastic, inelastic

If total revenue changes in the opposite direction from prices, demand is BLANK. If price and total revenue change in the same direction, demand is BLANK. Where demand is of unit elasticity, a change in price leaves total revenue unchanged.

high, low

Industries that sell products which have BLANK income elasticity of demand coefficients are particularly hard hit by recessions. Those with products that have BLANK or negative income elasticity of demand coefficients fare much better.

inelastic, elastic

Perfectly BLANK demand is graphed as a line parallel to the vertical axis; perfectly BLANK demand is shown by a line above and parallel to the horizontal axis

demand

Price elasticity of BLANK measures consumer response to price changes. If consumers are relatively sensitive to price changes, it is elastic. If they are relatively unresponsive to price changes, it is inelastic.

inelastic demand

Product or resource demand for which the elasticity coefficient for price is less than 1. This means the resulting percentage change in quantity demanded is less than the percentage change in price.

perfectly inelastic demand

Product or resource demand in which price can be of any amount at a particular quantity of the product or resource demanded; quantity demanded does not respond to a change in price; graphs as a vertical demand curve.

perfectly elastic demand

Product or resource demand in which quantity demanded can be of any amount at a particular product price; graphs as a horizontal demand curve.

elastic demand

Product or resource demand whose price elasticity is greater than 1. This means the resulting change in quantity demanded is greater than the percentage change in price.

elasticity demand

The number of available substitutes, the size of an item's price relative to one's budget, whether the product is a luxury or a necessity, and length of time to adjust are all determinants of BLANK of BLANK.

price elasticity of demand

The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource.

cross elasticity of demand

The ratio of the percentage change in quantity demanded of one good to the percentage change in the price of some other good. A positive coefficient indicates the two products are substitute goods; a negative coefficient indicates they are complementary goods.

price elasticity of supply

The ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price; a measure of the responsiveness of producers to a change in the price of a product or resource.

income elasticity of demand

The ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income; measures the responsiveness of consumer purchases to income changes.

total revenue (TR)

The total number of dollars received by a firm (or firms) from the sale of a product; equal to the total expenditures for the product produced by the firm (or firms); equal to the quantity sold (demanded) multiplied by the price at which it is sold.