Subtleties of the Supply and Demand Model

These flashcards focus on key concepts related to price controls, elasticity, and their implications in supply and demand.

Price Ceiling

A government price control that sets the maximum allowable price for a good or service.

Price Floor

A government price control that sets the minimum allowable price for a good or service.

Shortage

A situation that occurs when the quantity demanded exceeds the quantity supplied.

Surplus

A situation that occurs when the quantity supplied exceeds the quantity demanded.

Elasticity of Demand

The percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.

Inelastic Supply

Supply where the price elasticity is less than one.

Elastic Supply

Supply where the price elasticity is greater than one.

Perfectly Elastic Supply

Supply where the price elasticity is infinite, indicating an infinite response to a change in price.

Income Elasticity of Demand

The percentage change in the quantity demanded of a good divided by the percentage change in income.

Cross-Price Elasticity of Demand

The percentage change in the quantity demanded of a good divided by the percentage change in the price of a related good.