Chapter 4: Elasticity Vocabulary

Vocabulary flashcards covering core concepts of price, cross, and income elasticities of demand and supply from Chapter 4.

Elasticity of Demand

The responsiveness of quantity demanded to a change in a good's price.

Price Elasticity of Demand (PED)

A measure of how strongly the quantity demanded responds to a change in the price of a product, calculated as percentage change in quantity demanded divided by percentage change in price.

Arc Elasticity

A method of measuring price elasticity between two points on a demand curve using the midpoint formula, where average price and average quantity are used as base values to avoid ambiguity.

Perfectly Inelastic Demand

Demand where price changes have no effect on quantity demanded, resulting in a price elasticity of demand equal to $0$ and a vertical demand curve.

Perfectly Elastic Demand

Demand where the percentage change in quantity demanded is infinitely large when price barely changes, resulting in an infinite price elasticity of demand and a horizontal demand curve.

Unit Elastic Demand

Demand where the percentage change in quantity demanded equals the percentage change in price, resulting in a price elasticity of demand equal to $1$.

Inelastic Demand

Demand where the percentage change in quantity demanded is smaller than the percentage change in price, resulting in a price elasticity of demand between $0$ and $1$.

Elastic Demand

Demand where the percentage change in quantity demanded is greater than the percentage change in price, resulting in a price elasticity of demand greater than $1$.

Total Revenue (TR)

The total amount from the sale of a good or service, equal to the price of the good multiplied by the quantity sold ($\text{TR} = P \times Q$).

Total Revenue Test

A method of estimating price elasticity of demand by observing the change in total revenue that results from a price change while holding all other influences on quantity sold constant.

Cross Elasticity of Demand

A measure of the responsiveness of demand for a good to a change in the price of a substitute or complement, calculated as the percentage change in quantity demanded of good $X$ divided by the percentage change in price of good $Y$.

Income Elasticity of Demand

A measure of how the quantity demanded of a good responds to a change in income, calculated as the percentage change in quantity demanded divided by the percentage change in income.

Normal Good

A good for which quantity demanded increases when income rises; demand is income elastic if elasticity is greater than $1$ and income inelastic if elasticity is between $0$ and $1$.

Inferior Good

A good or service for which the income elasticity of demand is negative (less than $0$).

Elasticity of Supply

A measure of the responsiveness of the quantity supplied to a change in the price of a good, calculated as the percentage change in quantity supplied divided by the percentage change in price.

Momentary Supply

Supply immediately following a price change where quantity supplied is constant, making the supply curve vertical and perfectly inelastic ($\text{PES} = 0$).

Short-Run Supply

Supply after a price change where producers can make limited response adjustments, making supply somewhat elastic.

Long-Run Supply

Supply after full time has elapsed for producers to adjust to a price change, making supply the most elastic.