Principles of Microeconomics: Elasticity and Its Application

These flashcards cover key terms and concepts related to elasticity in microeconomics as discussed in the lecture notes.

Elasticity

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

Inelastic Demand

Demand where quantity demanded changes little when price changes; elasticity is less than 1.

Elastic Demand

Demand where quantity demanded changes significantly in response to price changes; elasticity is greater than 1.

Price Elasticity of Demand

A measure calculated as the percentage change in quantity demanded divided by the percentage change in price.

Necessities vs Luxuries

Necessities tend to have inelastic demand, while luxuries tend to have elastic demand.

Total Revenue (TR)

The total amount paid by buyers and received by sellers, calculated as price multiplied by quantity.

Cross-Price Elasticity of Demand

A measure that assesses how the quantity demanded of one good responds to a change in the price of another good.

Income Elasticity of Demand

Measures how quantity demanded changes in response to changes in consumer income.

Perfectly Inelastic Demand

A situation where quantity demanded remains constant regardless of price changes.

Perfectly Elastic Demand

A situation where even a tiny change in price causes the quantity demanded to drop to zero.

Time Horizon

The duration that producers have to adjust production in response to price changes.