Understanding Price Elasticity of Demand and Supply

Price Elasticity of Demand

Measures quantity demanded response to price changes.

Inelastic Demand

Quantity demanded changes less than price change.

Elastic Demand

Quantity demanded changes more than price change.

Unit Elastic Demand

Quantity demanded changes equal to price change.

Income Elasticity of Demand

Measures demand response to income changes.

Cross-Price Elasticity

Measures demand response to price of another good.

Inferior Good

Demand increases as income decreases.

Normal Good

Demand increases as income increases.

Substitutes

Goods that can replace each other.

Complements

Goods that are consumed together.

Price Elasticity of Supply

Measures quantity supplied response to price changes.

Steeper Demand Curve

Indicates inelastic demand characteristics.

Flatter Demand Curve

Indicates elastic demand characteristics.

Percentage Change

Calculates elasticity using demand and price changes.

Seller Benefit from Price Increase

Occurs when demand is inelastic.

Seller Benefit from Price Decrease

Occurs when demand is elastic.

Absolute Value of Elasticity

Indicates strength of demand responsiveness.

Magnitude of Response

Describes how much quantity changes with price.

Market Event Impact

Shifts demand curve based on external factors.

Shortage Creation

Occurs when demand exceeds supply at a price.

Demand Curve Shift

Movement of the demand curve due to factors.

Price Elasticity of Demand

Responsiveness of quantity demanded to price changes.

Income Elasticity of Demand

Responsiveness of quantity demanded to income changes.

Cross-Price Elasticity

Responsiveness of quantity demanded of one good to price of another.

Price Elasticity of Supply

Responsiveness of quantity supplied to price changes.

Inelastic Demand

Percentage change in quantity demanded less than price change.

Elastic Demand

Percentage change in quantity demanded greater than price change.

Unit Elastic Demand

Percentage change in quantity demanded equal to price change.

Inferior Good

Demand decreases as income increases.

Substitutes

Goods that can replace each other in consumption.

Price Increase with Inelastic Demand

Seller benefits from raising prices.

Price Decrease with Elastic Demand

Seller benefits from lowering prices.

Absolute Value of Elasticity

Used to determine elasticity type: elastic, inelastic, unit.

Elasticity Greater Than 1

Indicates elastic demand.

Elasticity Less Than 1

Indicates inelastic demand.

Elasticity Equal to 1

Indicates unit elastic demand.

Price Change Impact

Changes in price affect quantity demanded differently.

Demand Curve Characteristics

Shape indicates responsiveness to price changes.

Elastic Demand

Demand that changes significantly with price changes.

Inelastic Demand

Demand that changes little with price changes.

Unit Elastic Demand

Demand where price change does not affect total revenue.

Necessity Goods

Goods with inelastic demand, essential for consumers.

Luxury Goods

Goods with elastic demand, non-essential for consumers.

Price Elasticity of Demand

Measure of how quantity demanded responds to price changes.

Close Substitutes

Products that can easily replace each other.

Long Run Elasticity

Elasticity measured over a longer time frame.

Short Run Elasticity

Elasticity measured over a shorter time frame.

Cigarette Price Elasticity

Price elasticity of demand for cigarettes is 0.4.

Price Increase Effect

Higher prices typically decrease quantity demanded.

Demand Curve Representation

Graphical depiction of quantity demanded at various prices.

Market Demand

Total quantity demanded by all consumers in the market.

Price Inelasticity

Condition where demand does not significantly change with price.

Demand Shift

Change in demand due to factors other than price.

Consumer Behavior

Study of how individuals make purchasing decisions.

Income Elasticity

Responsiveness of demand to changes in consumer income.

Cross-Price Elasticity

Responsiveness of demand for one good to the price of another.

Price Sensitivity

Degree to which demand changes in response to price.

Market Equilibrium

Point where quantity demanded equals quantity supplied.

Demand Curve Slope

Indicates the relationship between price and quantity demanded.

Total Revenue

Total income from sales, calculated as price times quantity.

Determinant of Elasticity

Key factors affecting price elasticity of supply.

Time Horizon

Duration affecting supply elasticity responsiveness.

Elastic Supply Curve

Flat supply curve indicates high elasticity.

Inelastic Supply Curve

Steep supply curve indicates low elasticity.

Storable Products

Higher storage increases price elasticity of supply.

Legalization Effects

Legalizing marijuana likely increases its supply.

Demand Elasticity

Inelastic demand means quantity demanded changes less.

Drug Interdiction Policy

Reduces supply, increases drug-related crime due to demand.

Junk Food Ban

May reduce quantity sold and raise prices.

Nutrition Education Programs

Encourages healthy eating, impacts junk food sales.

Substitutes

Positive cross-price elasticity indicates goods can replace each other.

Complements

Negative cross-price elasticity indicates goods are used together.

Price Inelastic Demand

Demand changes little with price changes.

Price Elastic Demand

Demand changes significantly with price changes.

Elasticity Measurement

Quantifies responsiveness of supply or demand.

Cross-Price Elasticity

Measures how price change of one good affects another.

Quantity Supplied

Total amount sellers willing to sell at price.

Government Policy Impact

Policies can shift supply and demand curves.

Market Equilibrium

Point where supply equals demand at a price.

Consumer Budget Impact

Importance of goods in budget affects elasticity.

Supply Response

Seller adjustments to price changes in the market.