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price elasticity of demand
percent change in quantity demanded/percent change in price
price elasticity of demand =0
perfectly inelastic, so price has no effect on quantity demanded
price elasticity of demand is between 0 and 1
in elastic a rise in price increases total revenue
price elasticity of demand is exactly 1
unit elastic change in price have no effect on total revenue
price elasticity of demand is greater then 1 but less then ∞
the good is elastic so a rise in price reduces total revenue
price elasticity of demand is ∞
perfectly elastic, any rise in price would result in a demand of 0, any fall in price results in an infinite quantity demanded
cross-price elasticity of demand
% change in quantity of one good/ % change in price of another good
negative cross price elasticity of demand
the goods are complements so quantity demanded of one falls when the price of the other rises
positive cross price elasticity of demand
the goods are subsitutes so quantity demanded of one will rise when the price of the other goes up
imcome elasticity of demand
% change in quantity demanded/ % change in income
negative income elasticity of demand
inferior good, quantity demanded falls when income increases
positive but less then 1 income elasticity of demand
normal good that is income inelastic, the goods are neccesities and quantity demanded rises when income rises just not as rapidly as income
Greater then one income elasticity of demand
normal good that is income elastic, these goods are luxuries and quantity demanded rises when income rises and more rapidly then income
price elasticity of supply
% change in quantity suppled/ % change in price
price elasticity of supply is 0
the good is perfectly inelastic price has no effect on quantity supplied and has a vertical curve
price elasticity of supply is greater then 0 but less then ∞
normal supply curve
price elasticity of supply is ∞
any fall in price results in infinite quantity supplied to fall to 0. Any rise in price elicits an infinite quantity supplied (horizontal curve)
subsitution effect
you switch to a cheaper alternative when the price of something increases
income effect
when a price change makes you feel richer or poorer and changes what you buy overall
price elasticity of demand
% change in quantity demanded/% change in the price
property rights
the owner of a propertie can do whatever they like with it
economic signals
any information about the markets that elp others make better market decisions
market failure
the inefficient distribution of goods and services in the free market
price controls
legal restirctions surrounding how high or low a market price may go
price ceiling
a max price sellers can charge for a good or service
price floor
a minimum price buyers are required to pay for a good or service
inefficient allocation to consumers
people who are willing to pay more for the good dont get it, and those who dont want to pay above the low price do get it
price ceilings lead to ineffiency by promoting…
black markets, inefficiently low quality, and wasted resources
examples of price ceilings
rent price caps in new york
examples of price floors
minimum wage, farmers surplus
price floors lead to ineffiecieny by promoting…
ineffieciently low quality, inefficient allocation of sellers,wasted resources, ineffiecently high quality, illegal activity
inefficient allocation of sellers
those who would sell for less arent the ones who are always selling their product
Note 
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