elasticity market value

Elasticity

A measure of how one variable responds to changes in another.

Price Elasticity of Demand (PED)

Responsiveness of quantity demanded to price changes.

Elastic Demand

PED > 1; quantity demanded changes significantly with price.

Inelastic Demand

PED < 1; quantity demanded changes minimally with price.

Unit-Elastic Demand

PED = 1; quantity demanded changes proportionally with price.

Midpoint Formula

A consistent method for calculating elasticity across ranges.

Cross-Price Elasticity

Measures how demand for one good changes with price changes of another (substitutes or complements).

Income Elasticity of Demand

Reflects demand changes in response to income variations (normal vs. inferior goods).

Price Elasticity of Supply (PES)

Responsiveness of quantity supplied to price changes.

Total Revenue

Total sales revenue affected by price elasticity.

Externalities

Costs or benefits affecting third parties outside a transaction (e.g., pollution, education).

Market Failure

Inefficient allocation of resources due to unaccounted externalities.

Private Marginal Costs/Benefits

Direct costs or benefits for individuals or firms in a transaction.

Social Marginal Costs/Benefits

Total costs/benefits, including external effects.

Public Goods

Goods that are nonrival and nonexcludable.

Free-Rider Problem

Under-provision of public goods due to individuals benefiting without contributing.

Property Rights

Legal rights to resource use, essential for managing resources efficiently.

Coase Theorem

States that with low transaction costs and clear property rights, externalities can be resolved through negotiation.

Elastic Demand (formula)

PED = %Change in Quantity Demanded / %Change in Price.

Inelastic Demand (formula)

PED < 1; minimal response in demand to price changes.

Normal Goods (Income Elasticity)

Demand increases with income; positive elasticity.

Inferior Goods (Income Elasticity)

Demand decreases with income; negative elasticity.

Characteristic of Public Goods

Nonrival and nonexcludable.

Significance of Property Rights

Ensures efficient resource allocation.