The market

Elasticity of demand

Refers to how responsive consumers are to changes in the price of a product.

Price elasticity of demand (PED)

Calculated by dividing the percentage change in quantity demanded by the percentage change in price.

Elastic demand

Occurs when PED is greater than 1; buyers are more responsive to price changes.

Inelastic demand

Occurs when PED is less than 1; buyers are not greatly affected by price changes.

Unit elastic demand

Occurs when PED equals 1; percentage change in price matches the percentage change in demand.

Perfectly elastic demand

Occurs when any increase in price causes demand to drop to 0.

Perfectly inelastic demand

Occurs when demand remains constant regardless of changes in price.

Necessities

Products with inelastic demand where consumers continue to buy despite price changes.

Luxuries

Items with elastic demand as consumers can change their buying habits in response to price changes.

Market equilibrium

The point where the quantity demanded equals the quantity supplied.

Law of demand

States that as the price increases, consumer demand decreases and vice versa.

Law of supply

States that as the price increases, the quantity supplied also increases.

Shifts in demand curve

Caused by non-price factors like changes in income levels, tastes, or preferences.

Shifts in supply curve

Caused by non-price factors like technology advancements or changes in production costs.

Price elasticity of supply

Measures the responsiveness of quantity supplied to changes in price.

Price floor

A government-imposed minimum price for a good or service.

Price ceiling

A government-imposed maximum price for a good or service.

Comparative statistics

Analytical tools used to assess shifts in market conditions.