Chapter 5 - Elasticity Flashcards
elasticity
A general concept used to quantify the response in one variable when another variable changes.
price elasticity of demand
The ratio of the percentage of change in quantity demanded to the percentage of change in price; measures the responsiveness of quantity demanded to changes in price.
perfectly inelastic demand perfectly inelastic demand
Demand in which quantity demanded does not respond at all to a change in price.
perfectly elastic
demand Demand in which quantity drops to zero at the slightest increase in price.
elastic demand
A demand relationship in which the
percentage change in quantity demanded is larger than the percentage change in price in absolute value (a demand elasticity with an absolute value greater than 1).
inelastic demand
Demand that responds somewhat, but not a great deal, to changes in price. Inelastic demand always has a numerical value between zero and -1.
unitary elasticity
A demand relationship in which the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of -1).
midpoint formula
A more precise way of calculating percentages using the value halfway between P1 and P2 for the base in calculating the percentage change in price and the value halfway between Q1 and Q2 as the base for calculating the percentage change in quantity demanded.
income elasticity of
demand
A measure of the responsiveness of demand to changes in income.
cross-price elasticity of demand
A measure of the response of the quantity of one good demanded to a change in the price of another good.
elasticity of supply
A measure of the response of quantity of a good supplied to a change in price of that good. Likely to be positive in output markets.
elasticity of labor supply
A measure of the response of labor supplied to a change in the price of labor.
