Modern Principles of Economics - Chapter 5: Elasticity and Its Applications

These flashcards cover key vocabulary related to elasticity in economics, focusing on definitions and concepts that are crucial for understanding how price changes affect supply and demand.

Elasticity of Demand

Measures how responsive the quantity demanded is to a change in price.

More Elastic

Indicates a greater responsiveness in quantity demanded due to a price change.

Determinants of Elasticity

Factors that influence the elasticity of demand, such as the availability of substitutes, time to adjust to price changes, definitions of products, and whether they are necessities or luxuries.

Inelastic Demand

Demand is considered inelastic when a change in price results in a smaller change in quantity demanded (|Ed| < 1).

Total Revenue

Calculated as price per unit multiplied by quantity sold; it reflects how elasticity affects revenue when prices change.

Elastic Demand

Demand is considered elastic when a change in price results in a larger change in quantity demanded (|Ed| > 1).

Unit Elastic

Occurs when a change in price leads to a proportional change in quantity demanded (|Ed| = 1).

Elasticity of Supply

Measures how responsive the quantity supplied is to a change in price.

Short Run vs Long Run Elasticity

Elasticity tends to be more elastic in the long run compared to the short run due to greater adjustment possibilities.

Applications of Supply Elasticity

Real-world implications of supply elasticity, such as the effectiveness of gun buyback programs and housing market dynamics.