Chapter 5: Elasticity

Total revenue

________ (TR) is the amount of money earned when a supplier sells a given quantity of a good and it is equal to the price of the good multiplied by the quantity of the good sold.

percentage changes

Using ________ also allows us to compare responses across goods that are measured in different units.

possible prices

When demand is perfectly inelastic, at each of the ________ quantity demanded is constant and unchanging.

elasticity coefficient

The ________ is the percent change in quantity demanded divided by the percentage change in price.

Elasticity

________ is a measure of responsiveness between any two variables.

elasticity coefficient

When demand is inelastic, the absolute value of the ________ is less than 1 because the numerator of E will be smaller than the denominator of E.

total revenue

When demand is elastic, a decrease in price causes an increase in ________, while an increase in price causes a decrease in ________.

elasticity coefficient

When demand is elastic, the absolute value of the numerator of the ________ will be greater than the absolute value of the denominator of the ________.

Economists categorize the price elasticity of demand into two broad categories to describe the different levels of consumer responsiveness to changes in goods' prices

elastic demand and inelastic demand

Within the elastic and inelastic categories of elasticity are three important subcategories that represent the special cases of consumer responsiveness to price changes

perfectly inelastic demand, perfectly elastic demand, and unit elastic demand

perfect inelastic demand

the extreme subcategory of inelastic demand that describes the situation where quantity demanded does not change in response to a price change.

perfect elastic demand

the extreme subcategory of elastic demand that describes the situation where quantity demanded changes by an infinite amount in response to a price change.

unit elastic demand

when a given percent change in the price of a good causes an equal size percent change in the quantity of the good demanded.

four factors that impact the price elasticity of demand

1)The Availability of Substitutes

2)Luxury versus Necessity Goods

3)The length of Time Available to Adjust to a Price Change

4)The Portion of Income Spent on the Good

Elastic demand

when a given percent change in the price of a good causes a larger percent change in the quantity demanded of the good.

Inelastic demand

when a given percent change in the price of a good causes a smaller percent change in the quantity demanded of the good.