Economics: Elasticity and Market Equilibrium

Vocabulary flashcards generated from lecture notes covering market equilibrium, price elasticity of demand, total revenue test, income elasticity, cross elasticity, and elasticity of supply.

Surplus

A situation in market equilibrium where the quantity supplied exceeds the quantity demanded at a given price.

Shortage

A situation in market equilibrium where the quantity demanded exceeds the quantity supplied at a given price.

Price Elasticity of Demand

A units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same, calculated as $\frac{\%\Delta Q}{\%\Delta P}$.

Perfectly Inelastic Demand

Demand where the quantity demanded does not change when the price changes, resulting in a price elasticity of demand equal to $0$.

Unit Elastic Demand

Demand where the percentage change in quantity demanded equals the percentage change in price, resulting in a price elasticity of demand equal to $1$.

Perfectly Elastic Demand

Demand where the smallest possible increase in price causes an infinitely large decrease in quantity demanded, resulting in a price elasticity of demand equal to $\infty$.

Inelastic Demand

Demand where the percentage change in quantity demanded is less than the percentage change in price, giving a price elasticity magnitude less than $1$ but greater than $0$.

Elastic Demand

Demand where the percentage change in quantity demanded exceeds the percentage change in price, giving a price elasticity magnitude greater than $1$ but less than $\infty$.

Total Revenue

The total amount received from the sale of a good or service, calculated as price multiplied by quantity sold ($TR = P \times Q$).

Total Revenue Test

A method of estimating price elasticity of demand by observing the change in total revenue that results from a price change, holding all other influences constant.

Income Elasticity of Demand

A measure of how the quantity demanded of a good responds to a change in income, calculated as percentage change in quantity demanded divided by percentage change in income.

Normal Good

A good for which demand increases as income increases, indicated by a positive income elasticity of demand.

Inferior Good

A good for which quantity demanded decreases as income increases, indicated by a negative income elasticity of demand.

Cross Elasticity of Demand

A measure of the responsiveness of demand for a good to a change in the price of a substitute or complement, calculated as percentage change in quantity demanded divided by percentage change in price of the other good.

Substitute Good

A good that can be used in place of another good, characterized by a positive cross elasticity of demand.

Complement Good

A good that is used in conjunction with another good, characterized by a negative cross elasticity of demand.

Elasticity of Supply

A measure of the responsiveness of the quantity supplied to a change in the price of a good, calculated as percentage change in quantity supplied divided by percentage change in price.

Perfectly Inelastic Supply

Supply where the quantity supplied is constant regardless of price, resulting in an elasticity of supply equal to $0$.

Unit Elastic Supply

Supply where the percentage increase in quantity supplied equals the percentage increase in price, resulting in an elasticity of supply equal to $1$.

Perfectly Elastic Supply

Supply where the smallest possible increase in price causes an infinitely large increase in quantity supplied, resulting in an elasticity of supply equal to $\infty$.

Momentary Supply

The supply response immediately following a price change, where the quantity supplied is constant and supply is perfectly inelastic.

Short-Run Supply

The supply response to a price change after producers have had time to make partial adjustments, making supply somewhat elastic.

Long-Run Supply

The supply response after all technologically possible adjustments to a price change have taken place, representing the state of maximum elasticity of supply.