Elasticity in Economics

These flashcards cover key terms and concepts related to elasticity in economics, including definitions and important formulas.

Elasticity

A measure of how much buyers and sellers respond to changes in market conditions.

Price Elasticity of Demand

How much the quantity demanded of a good responds to a change in its price, measuring price-sensitivity of buyers’ demand.

Inelastic Demand

Demand where quantity demanded changes proportionately less than the price change, indicated by price elasticity < 1.

Elastic Demand

Demand where quantity demanded changes proportionately more than the price change, indicated by price elasticity > 1.

Unit Elastic Demand

Demand where quantity demanded changes proportionately the same as the price change, indicated by price elasticity = 1.

Perfectly Inelastic Demand

Demand type where quantity demanded does not change at all with price changes, indicated by price elasticity = 0.

Perfectly Elastic Demand

Demand type where consumers will only buy at one price, resulting in quantity demanded changing infinitely with price variances.

Midpoint Method

A method used to calculate percentage changes that averages the starting and ending values to find elasticity.

Cross-Price Elasticity of Demand

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

Income Elasticity of Demand

Measures how much the quantity demanded of a good responds to changes in consumers’ income.

Determinants of Price Elasticity of Demand

Factors that affect price elasticity, including availability of substitutes, necessity vs. luxury, market definition, and time for buyer response.

Total Revenue

The total income a firm receives from selling its product, calculated as price times quantity sold.

Law of Demand

Principle stating that if the price of a good increases, the quantity demanded typically decreases.

Percentage Change Formula

A standard method of computing the percentage change in a variable: (end value - start value) / start value * 100.