Economics 102 Consumers and Incentives Chapter 5 Study Guide

These flashcards cover key vocabulary terms and concepts related to consumers and incentives in economics, focusing on consumer behavior, elasticity, and related definitions.

Consumer Surplus

The difference between what a buyer is willing to pay for a good and what the buyer actually pays.

Elasticity

A measure of how sensitive one variable is to changes in another.

Price Elasticity of Demand

Measures how much quantity demanded changes when the price of a good changes.

Elastic Demand

Occurs when the elasticity of demand is greater than 1 (ED > 1).

Inelastic Demand

Occurs when the elasticity of demand is less than 1 (ED < 1).

Unit Elastic Demand

Occurs when the elasticity of demand is equal to 1 (ED = 1).

Perfectly Elastic Demand

Occurs when the elasticity of demand is infinite (ED = ∞).

Perfectly Inelastic Demand

Occurs when the elasticity of demand is zero (ED = 0).

Determinants of Price Elasticity of Demand

Factors that influence how sensitive demand is to price changes, such as substitutes, budget share, and time horizon.

Cross-Price Elasticity of Demand

How much the quantity demanded of one good changes when the price of another good changes.

Income Elasticity of Demand

Percentage change in demand of a good due to a percentage change in income.

Normal Good

A good for which demand increases when income increases (greater than 0 and less than 1).

Inferior Good

A good for which demand decreases when income increases (less than 0).

Luxury Good

A good for which demand increases more than proportionately as income rises (greater than 1).