Chapter 6: Price Elasticity Flashcards
Elasticity
Concept measuring responsiveness of one variable to changes in another variable
Price Elasticity
(% change in quantity demanded or supplied)/(% change in price)
Elasticities (3)
- Elastic
- Unitary
- Inelastic
Elastic
Responsive to change in price (% change in quantity > % change in price)
Unitary
Proportional response of supply/demand to change in price (% change in quantity = % change in price)
Inelastic
Unresponsive to change in price (% change in quantity < % change in price)
Midpoint Method for Elasticity
Calculating Elasticity based on average % changes in quantity and price. Obtains same elasticity between 2 price points whether there is price increase or decrease.
Infinate/Perfect Elasticity
Quantity demanded/supplied changes by an infinite amount in response to change in price (exreme)
Zero Elasticity/Perfect Inelasticity
Change in price results in zero change in quantity (extreme)
Constant Unitary Elasticity
Price change of 1% results in quantity change of 1%