Introduction to Price Elasticity of Demand

These flashcards cover key vocabulary and concepts related to price elasticity of demand, as discussed in the lecture.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

Midpoint Method

A calculation technique that provides a consistent measure of elasticity by using the average price and quantity.

Substitutes

Goods that can be used in place of each other; the more substitutes available, the higher the price elasticity of demand.

Necessities vs. Luxuries

Necessities tend to have inelastic demand, while luxuries typically have elastic demand.

Narrowly Defined Goods

Products with few close substitutes, where demand is more elastic.

Broadly Defined Goods

Products with many substitutes; demand is less elastic.

Short Run vs. Long Run Elasticity

In the short run, demand is generally inelastic; in the long run, demand is more elastic as consumers adjust to price changes.

Perfectly Inelastic Demand

A situation where quantity demanded does not change regardless of price changes.

Perfectly Elastic Demand

A situation where any change in price results in an infinite change in quantity demanded.

Unit Elastic Demand

Demand is considered unit elastic when the percentage change in quantity demanded is equal to the percentage change in price.

Factors Affecting Price Elasticity of Demand

Includes availability of substitutes, necessity vs. luxury classification, definitions of goods, and time for consumer adjustment.