Elasticity: Measuring Responsiveness

These flashcards cover key vocabulary and concepts related to elasticity in economics, focusing on price elasticity of demand and supply, as well as related determinants and scenarios.

Price Elasticity of Demand

A measure of how responsive buyers are to price changes, indicating how much the quantity demanded changes in response to a price change.

Elastic Demand

When the absolute value of the percent change in quantity is larger than the absolute value of the percent change in price, indicating that buyers are very responsive to price changes.

Inelastic Demand

When the absolute value of the percent change in quantity is smaller than the absolute value of the percent change in price, indicating that buyers are not responsive to price changes.

Cross-Price Elasticity of Demand

A measure of how responsive the demand for one good is to price changes of another good.

Income Elasticity of Demand

A measure of how responsive the demand for a good is to changes in income.

Perfectly Elastic Demand

When any change in price leads to an infinitely large change in quantity demanded, represented by a horizontal demand curve.

Perfectly Inelastic Demand

When quantity demanded does not respond at all to price changes, represented by a vertical demand curve.

Determinants of Price Elasticity of Demand

Factors influencing elasticity, such as availability of substitutes, necessity versus luxury, and time factors.

Price Elasticity of Supply

A measure of how responsive sellers are to price changes, indicating how much the quantity supplied changes in response to a price change.

Determinants of Price Elasticity of Supply

Factors that influence supply elasticity including flexibility of production, existence of inventories, and ease of entry and exit in the market.