Price Elasticity of Demand and Supply

A comprehensive set of flashcards on the concepts of price elasticity of demand and supply, including definitions and examples to aid in understanding for exam preparation.

Price Elasticity of Demand

Measures how much quantity demanded responds to a change in price.

Elastic Demand

Demand is elastic if quantity demanded responds substantially to price changes.

Inelastic Demand

Demand is inelastic if quantity demanded responds only slightly to price changes.

Close Substitutes

Goods with close substitutes tend to have more elastic demand.

Necessities vs. Luxuries

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

Market Definition

Narrowly defined markets tend to have more elastic demand than broadly defined ones.

Time Horizon

Demand tends to be more elastic over longer periods of time.

Midpoint Method

A method for calculating elasticity that avoids confusion by using averages of initial and final levels.

Income Elasticity of Demand

Measures how quantity demanded changes as consumer income changes.

Inferior Goods

Goods for which demand decreases as consumer income increases.

Cross-Price Elasticity of Demand

Measures how quantity demanded of one good responds to a change in the price of another good.

Elastic Supply

Supply is elastic if quantity supplied responds substantially to price changes.

Inelastic Supply

Supply is inelastic if quantity supplied responds only slightly to price changes.

Perfectly Elastic Supply

Occurs when small changes in price lead to large changes in quantity supplied.

Price Elasticity of Supply

Measures how much quantity supplied responds to changes in price.