Elasticity Lecture Review

Flashcards covering key concepts from the lecture on elasticity, including various types of demand and supply elasticity, their definitions, graphs, and related economic concepts like total revenue and determinants.

Price Elasticity of Demand

Measures the responsiveness of quantity demanded to a change in price.

Perfectly Elastic Demand/Supply

An extreme elasticity where quantity changes infinitely with a tiny price change; represented by a horizontal line on a graph.

Elastic Demand/Supply

Elasticity value greater than one, indicating a large response in quantity to a price change; graphically represented by a relatively flat curve.

Unit Elastic Demand/Supply

Elasticity value equal to one, indicating that quantity changes proportionally to a price change; for supply, a straight line curve through the origin has this elasticity.

Inelastic Demand/Supply

Elasticity value less than one, indicating a small response in quantity to a price change; graphically represented by a relatively steep curve.

Perfectly Inelastic Demand/Supply

Elasticity value of zero, indicating no change in quantity regardless of price changes; represented by a vertical line on a graph. (e.g., historical wine supply).

Total Revenue

The total money received by a producer from selling a good, calculated as price multiplied by quantity; what consumers spend is what producers get.

Income Elasticity of Demand

Measures the responsiveness of quantity demanded to a change in consumer income.

Normal Good

A good for which quantity demanded increases as consumer income increases, resulting in a positive income elasticity of demand (greater than zero).

Inferior Good

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

Cross-Price Elasticity of Demand

Measures the responsiveness of the quantity demanded of one good to a change in the price of another related good.

Midpoint Formula

A method used to calculate elasticity that provides the same result regardless of the direction of the price or quantity change, by using average price and average quantity.

Determinant of Price Elasticity of Supply

Time; the more time firms have to adjust production in response to a price change, the more elastic the supply.