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Cards In This Set
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Own-price elasticity of demand (Ed)
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A measure of the responsiveness of the quantity demanded to changes in price; equal to the absolute value of the percentage change in quantity demanded divided by the percentage change in price
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Elastic demand
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The price elasticity of demand is greater than one, so the percentage change in quantity exceeds the percentage change in price
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Inelastic demand
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The price elasticity of demand is less than one, so the percentage change in quantity is less than the percentage change in price
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Unit elastic demand
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The price elasticity of demand is one, so the percentage change in quantity equals the percentage change in price
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Perfectly inelastic demand
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The price elasticity of demand is zero
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Perfectly elastic demand
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The price elasticity of demand is infinite
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Total revenue
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The money a firm generates from selling its product
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Income elasticity of demand (Einc)
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Shows how responsive consumers are to a change in income; i.e. how much quantity demanded changes when income changes
Einc = %∆Qd / %∆inc |
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Cross-prince of demand (Exy)
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A measure of the responsiveness of demand to changes in the price of another good;equal to the percentage change in the quantity demanded of one good (X) divided by the percentage change in the price of another good (Y)
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Price elasticity of supply (Es)
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Show how responsive producers are to a change in price; i.e. how much quantity supplied changes when the price of a product changes
The most important determinant of supply elasticity is TIME |
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Perfectly inelastic supply
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 The price elasticity of supply equals zero |
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Perfectly elastic supply
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The price elasticity of supply is equal to infinity
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Elasticity measures
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%∆Qd/ %∆P
∆Qd/avg Qd / ∆P/avg P |
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Elastic demand
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%∆Qd > %∆P|Ed| > 1
When consumers are very responsive to price changes, the change in quantity demanded is larger in percentage terns than the change in price |
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Inelastic demand
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%∆Qd < %∆P
|Ed| < 1 When consumers are not very responsive to price changes, the change in quantity demanded is smaller in percentage terms than the change in price |
