Lesson 4: Elasticity of Demand & Other Elasticities (ECON-221)
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9 Terms
Price Elasticity of Demand
how much something (quantity demanded or quantity supplied) will stretch or change in response to another variable (price)
Elastic Demand
a high responsiveness of quantity demanded or supplied to changes in price
Inelastic Demand
a low responsiveness by consumers to price changes
Unitary Elasticity
when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied
Midpoint method
Percentage change = Change in quantity or price/Average quantity or price
Most accurate approach to solving for elasticity
Total revenue
the price of an item multiplied by the number of units sold: TR = P x Qd
Price Elasticity of Supply
percentage of change in the quantity supplied divided by the percentage change in price
Income Elasticity of Demand
the percentage change in quantity demanded divided by the percentage change in income
Cross-Price Elasticity of Demand
the percentage change in the quantity of good A that is demanded as a result of a percentage change in good B