Chapter 4: Demand Elasticity

Advertising elasticity

The percentage change in quantity demanded caused by a 1 percent change in advertising expenses.

Arc elasticity

Elasticity that is measured over a discrete interval of a demand (or supply) curve.

Coefficient of elasticity

The percentage change in one variable dividend by the percentage change in the other variable.

Complementary good

A product consumed in conjunction with another. Two goods are complementary if the quantity demanded of one increases when the price of the other decreases.

Cross-elasticity

The percentage change in the quantity consumed of one product as a result of a 1 percent change in the price of a related product.

Derived demand

The demand for products or factors that are not directly consumed but go into the production of a final product. The demand for such a product or factor exists because there is demand for the final product.

Elasticity

The sensitivity of one variable to another or, more precisely, the percentage change in one variable relative to a percentage change in another.

Income elasticity

The percentage change in quantity demanded caused by a 1 percent change in another.

Inferior good

A product whose consumption decreases as income in creases (i.e., its income elasticity is negative).

Marginal revenue

The change in total revenue resulting from changing quantity by one unit.

Point elasticity

Elasticity measured at a given point of a demand (or a supply) curve.

Price elasticity of demand

The percentage change in quantity demanded caused by a 1 percent change in price.

Price elasticity of supply

The percentage change in quantity supplied as a result of a 1 percent change in price.

Substitute good

A product that is similar to another and can be consumed in place of it. Two goods are substitutes if the quantity consumed of one increases when the price of the other increases.