Chapter 5 Mankiw Quiz Flashcards

Vocabulary flashcards based on lecture notes about elasticity and demand, covering price elasticity, income elasticity, and related concepts.

Price Elasticity of Demand

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

Income Elasticity of Demand

Measures how much the quantity demanded responds to changes in consumer income.

Determinants of Price Elasticity of Demand

Availability of close substitutes, whether the good is a necessity or a luxury, the breadth of the definition of the market, and the time horizon.

Elastic Demand

Demand where the percentage change in quantity demanded exceeds the percentage change in price (elasticity greater than 1).

Perfectly Inelastic Demand

Demand where there is no change in quantity demanded when there is a change in price (elasticity equals zero).

Elastic Demand and Total Revenue

If demand is elastic, an increase in price reduces total revenue because the quantity demanded falls by a greater percentage than the price rises.

Inferior Good

A good for which the quantity demanded declines as income rises (income elasticity is less than zero).

Price Elasticity of Supply

Calculated as the percentage change in quantity supplied divided by the percentage change in price; measures how much quantity supplied responds to a change in price.

Price Elasticity of Supply When Quantity is Fixed

The price elasticity of supply is zero. There is no change in quantity supplied regardless of the percentage change in price.

Inelastic

Demand where consumers are not very sensitive to price changes.

Elastic

Demand where consumers are very sensitive to price changes.