Elasticity Concepts (Video) — VOCABULARY Flashcards

Vocabulary flashcards covering key terms from 5.1 to 5.3 on elasticity of demand and supply, substitutes, and income effects.

Elastic demand

Demand in which the percentage change in quantity demanded is greater than the percentage change in price.

Unit elastic demand

Demand in which the percentage change in quantity demanded equals the percentage change in price.

Inelastic demand

Demand in which the percentage change in quantity demanded is less than the percentage change in price.

Price elasticity of demand

A measure of the responsiveness of quantity demanded to a change in price.

Availability of substitutes

The ease of finding substitutes; if easy to find, demand tends to be elastic, if hard to find, it tends to be inelastic.

Substitutes

Goods that can replace each other in consumption; their availability influences how price changes affect demand.

Luxury good

A nonessential good that typically has many substitutes and higher price sensitivity.

Necessity

An essential good that has few substitutes and typically lower price elasticity.

Narrowness of definition

Demand for a narrowly defined good is more elastic than for a broadly defined good.

Broadness of definition

Demand for broadly defined goods is more inelastic than for narrowly defined ones.

Time since price change (demand)

The longer the time since the price change, the more elastic the demand.

Proportion of income spent

The greater the share of income spent on a good, the more elastic the demand for that good.

Total revenue

Total revenue = price × quantity; its relation to elasticity helps categorize demand as elastic, unit elastic, or inelastic.

Elastic demand and total revenue relationship

If price and total revenue move in opposite directions, demand is elastic.

Unit elastic demand and total revenue

If a price change leaves total revenue unchanged, demand is unit elastic.

Inelastic demand and total revenue

If price and total revenue move in the same direction, demand is inelastic.

Price elasticity of supply

A measure of the responsiveness of the quantity supplied to a change in price, holding other influences constant.

Production possibilities (elastic supply)

Some goods can be produced at a constant opportunity cost, leading to elastic supply.

Perfectly inelastic supply

Supply that does not respond to price changes (production is fixed).

Time elapsed since price change (supply)

As time passes after a price change, production plans can adjust, making supply more elastic; near term, supply is very inelastic.

Storage possibilities

The ability to store a good affects supply elasticity; storable goods have higher elasticity, non-storable goods have lower elasticity.

Cross elasticity of demand

Measures how the quantity demanded of a good responds to a change in the price of a substitute or a complement.

Income elasticity of demand

Measures how the quantity demanded responds to a change in income.

Income elastic demand

A demand that takes an increasing share of income as income rises.

Income inelastic demand

A demand that takes a decreasing share of income as income rises.

Negative income elasticity of demand

Demand decreases as income increases (typical for inferior goods).