Econ - Chapter 19 Demand and Supply Elasticity

What is price elasticity of demand?

The responsiveness of quantity demanded of a commodity to changes in its prices

What is elastic demand?

The percentage change in quantity demanded is larger than the percentage change in price. Ep > 1

What is inelastic demand?

The percentage change in quantity demanded is smaller than the percentage change in price. Ep < 1

What is unit elasticity of demand?

The percentage change in quantity demanded is equal to the percentage change in price. Ep = 1

What is perfectly inelastic demand?

-Demand curve is a vertical line

-Only has one quantity demanded for each price

-No matter the price, the quantity demanded for each price does not change

What is perfectly elastic demand?

-Demand curve is a horizontal line

-Only has one price for every quantity

-The slightest increase in price leads to zero quantity demanded

What is elasticity-revenue relationship?

Total revenues are the product of price times units sold

What is the existence of substitutes?

The closer the substitutes and the more substitutes there are, the more elastic is demand

What is share of the budget?

The greater the share of the consumer’s total budget spent on a good, the greater is the price elasticity

What is income elasticity of demand?

The responsiveness of demand to changes in income, holding the goods relative price constant

What is price elasticity of supply?

The responsiveness of the quantity supplied of a commodity to change in its price

What is perfectly inelastic supply?

Quantity supplied is constant at any price. The supply curve is vertical at a given price

What is perfectly elastic supply?

Quantity supplied falls to 0 in the slightest decrease in price. The supply curve is horizontal at a given price