Chapter 5
Constant Elasticity Demand Curve
the type of demand that exists when price elasticity is the same everywhere along the curve; the elasticity value is unchanged
Unit Elastic
when the percentage change in price and quantity demanded are the same =1
Necessities
Income Elasticity<1
Luxuries
Income Elasticity>1
Linear Demand Curve
A straight-line demand curve; such a demand curve has a constant slope but usually has a varying price elasticity
Perfectly Inelastic Supply Curve
Refers to a price elasticity of supply value of zero, and arises in the case of a vertical supply curve.
Cross Price Elasticity of Demand
A measure of responsiveness of quantity demanded of good X to a change in the price of good Y; Negative sign will imply complements and a positive sign implies substitutes.
Elastic Demand
A situation in which consumer demand is sensitive to changes in price >1
Inelastic Demand
Describes demand that is not very sensitive to a change in price <1
Unit Elastic Demand Curve
Everywhere along the demand curve, the percentage change in price causes an equal but offsetting percentage change in quantity demanded, so total revenue remains the same; the elasticity has an absolute value of 1.0
Inferior Goods
Income Elasticity<0
Total Revenue
Price x Quantity
Perfectly Elastic Demand Curve
Refers to a price elasticity of demand value of infinity, and arises in the case of a horizontal demand curve.
Perfectly Elastic Supply Curve
Refers to a price elasticity of supply value of infinity, and arises in the case of a horizontal supply curve.
Perfectly Inelastic Demand Curve
Refers to a price elasticity of supply value of zero, and arises in the case of a vertical demand curve.
Unit Elastic Supply
The quantity supplied changes at the same rate as the price, 1
Elastic Supply
When a small change in price causes a major change in the quantity supplied >1
Income Elasticity of Demand
a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income
Price Elasticity of Demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
Price Elasticity of Supply
a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price
Elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants
Unit-Elastic SUpply Curve
a percentage change in price causes an identical percentage change in quantity supplied; depicted by a supply curve that is a straight line from the origin
Inelastic Supply
exists when a change in a good's price has little impact on the quantity supplied <1
