Elasticities in Economics

These flashcards cover key concepts related to elasticities in economics, helping students understand their definitions and implications.

Cross-Price Elasticity of Demand (CPEoD)

A measure of how the demand for a good is affected by the price changes of another good.

Income Elasticity of Demand (IEoD)

A measure of how the quantity demanded of a good changes in response to changes in consumer income.

Price Elasticity of Supply (PEoS)

A measure of how responsive the quantity supplied of a good is to a change in the price of that good.

Substitutes

Goods that can replace each other; an increase in the price of one leads to an increase in the quantity demanded of the other.

Complements

Goods that are consumed together; an increase in the price of one leads to a decrease in the quantity demanded of the other.

Elastic Demand

When the absolute value of price elasticity of demand is greater than 1, indicating that quantity demanded is sensitive to price changes.

Inelastic Demand

When the absolute value of price elasticity of demand is less than 1, indicating that quantity demanded is not very sensitive to price changes.

Unit-Elastic Demand

When the price elasticity of demand equals 1, indicating that the percentage change in quantity demanded is equal to the percentage change in price.

Normal Good

A good for which demand increases as consumer income rises, resulting in a positive income elasticity of demand.

Inferior Good

A good for which demand decreases as consumer income rises, resulting in a negative income elasticity of demand.