ECO 251 C5 Elasticity of Demand and Supply
Elastic Demand
A change in price has a relatively large effect on quantity demanded; the percentage change in quantity demanded exceeds the percentage change in price; the resulting price elasticity has an absolute value exceeding 1.0.
Elastic Supply
A change in price has a relatively large effect on quantity supplied; the percentage change in quantity supplied exceeds the percentage change in price; the price elasticity of supply exceeds 1.0.
Inelastic Demand
A change in price has relatively little effect on quantity demanded; the percentage change in quantity demanded is less than the percentage change in price; the resulting price elasticity has an absolute value less than 1.0.
Inelastic Supply
A change in price has relatively little effect on quantity supplied; the percentage change in quantity supplied is less than the percentage change in price; the price elasticity of supply is less than 1.0.
Perfectly Elastic Supply Curve
A horizontal line reflecting a situation in which any price decrease drops the quantity supplied to zero; the elasticity value is infinity.
Perfectly Elastic Demand Curve
A horizontal line reflecting a situation in which any price increase would reduce quantity demanded to zero; the elasticity has an absolute value of infinity.
Price Elasticity of Supply
A measure of the responsiveness of quantity supplied to a price change; the percentage change in quantity supplied divided by the percentage change in price.
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
A vertical line reflecting a situation in which a price change has no effect on the quantity supplied; the elasticity value is zero.
Perfectly Inelastic Demand Curve
A vertical line reflecting a situation in which any price change has no effect on the quantity demanded; the elasticity value is zero.
Price Elasticity of Demand
Measures how responsive quantity demanded is to a price change; the percentage change in quantity demanded divided by the percentage change in price.
Price Elasticity Formula
Percentage change in quantity demanded divided by the percentage change in price; the average quantity and the average price are used as bases for computing percentage changes in quantity and in price.
Total Revenue
Price multiple by quantity demanded at that price.
Income Elasticity of Demand
The percentage change in demand divided by the percentage change in consumer income; the value is positive for normal goods and negative for inferior goods.
Unit-Elastic Demand
The percentage change in quantity demanded equals the percentage change in price; the resulting price elasticity has an absolute value of 1.0.
Unit-elastic Demand Curve
The percentage change in quantity demanded equals the percentage change in price; the resulting price elasticity has an absolute value of 1.0.
Unit-elastic Supply
The percentage change in quantity supplied equals the percentage change in price; the price elasticity of supply equals 1.0.
Unit-elastic Supply Curve
The percentage change in quantity supplied equals the percentage change in price; the price elasticity of supply equals 1.0.
Cross-price Elasticity of Demand
The percentage change in the demand of one good divided by the percentage change in the price of another good; it's positive for substitutes, negative for complements, and zero for unrelated goods.
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.