Elasticity

Vocabulary

cross-price elasticity of demand

the percentage change in the quantity demanded for one good divided by the percentage change in the price of another; This value is greater than zero for substitutes and less than zero for complements
Eab=%ΔQDa%ΔPbE_{ab}=\frac{\%\Delta Q_{Da}}{\%\Delta P_b}

elastic demand

demand in which the percentage of the quantity demanded changes more than the percentage change in price

elastic supply

supply in which the percentage change in quantity supplied is greater than the percentage change in price

elasticity

a measure of how responsive one variable is to changes in another

income elasticity of demand

the responsiveness of demand to changes in consumers' income, as measured by the percentage change in the quantity demanded divided by the percentage change in consumers' income; this value is greater than zero for normal goods and less than zero for inferior goods
EY=%ΔQD%ΔYE_Y=\frac{\%\Delta Q_D}{\%\Delta Y}

inelastic demand

demand in which the quantity of a good or service that consumers demand is relatively insensitive to changes in price; the percentage change in quantity demanded is smaller than the percentage change in price

inelastic supply

a situation in which the quantity of a good or service that producers supply is relatively insensitive to changes in price; the percentage change in quantity supplied is smaller than the percentage change in price

midpoint formula

formula used to calculate the percentage change in a variable by dividing the change in the variable by the average of the the initial and final values
B2B1(B2+B1)/2÷A2A1(A2+A1)/2\frac{B_2 - B_1}{(B_2 + B_1) / 2} ÷ \frac{A_2 - A_1}{(A_2 + A_1) / 2}

perfectly elastic demand

a situation in which consumers respond to any price increase by no longer purchasing the good; the quantity demanded falls to zero, the demand curve is horizontal, and the value is infinite

perfectly elastic supply

a situation in which any change in price causes the quantity supplied to fall to zero; when the price elasticity of supply is infinite

perfectly inelastic demand

a situation in which the quantity demanded does not change in response to a change in price; the percentage change in quantity demanded is equal to zero, no matter how price changes, the demand curve for the good is vertical, and the value is equal to zero

perfectly inelastic supply

a situation in which any change in price of a good or service leads to no change in the quantity supplied; the supply curve is vertical and the price elasticity of supply is equal to zero

price elasticity of demand

a measure of how responsive the quantity demanded of a good is to changes in its price
ED=%ΔQD%ΔPE_D=\frac{\%\mathrm\Delta Q_D}{\%\mathrm\Delta P}

price elasticity of supply

a measure of how responsive the quantity supplied of a good is to changes in its price
ES=%ΔQS%ΔPE_S=\frac{\%\mathrm\Delta Q_S}{\%\mathrm\Delta P}

total revenue

the total amount earned by selling a good or service; the price of a good or service multiplied by the quantity sold
TR=P×QTR = P \times Q

unit elastic demand

a situation in which the percentage change in demand is equal to the percentage change in price; when the price elasticity of demand is equal to 1