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