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Elasticity Summary definitions

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  • Price Elasticity of Demand
    Measures how much quantity demanded changes in response to a price change, using percentage changes and absolute values.
  • Price Elasticity of Supply
    Indicates how quantity supplied responds to price changes, calculated with percentage changes and always positive values.
  • Income Elasticity of Demand
    Shows how quantity demanded shifts when consumer income changes, with sign revealing if goods are normal or inferior.
  • Cross-Price Elasticity of Demand
    Reveals how quantity demanded of one good changes when the price of another good changes, signifying substitutes or complements.
  • Midpoint Method
    A calculation technique using averages to find percentage changes, ensuring consistent elasticity results regardless of direction.
  • Absolute Value
    Ensures elasticity calculations for price are always positive, simplifying interpretation of responsiveness.
  • Normal Good
    A product whose demand increases as consumer income rises, identified by positive income elasticity.
  • Inferior Good
    A product whose demand decreases as consumer income rises, indicated by negative income elasticity.
  • Substitute
    A good whose demand rises when the price of another good increases, shown by positive cross-price elasticity.
  • Complement
    A good whose demand falls when the price of another good increases, reflected by negative cross-price elasticity.
  • Elastic Demand
    Occurs when the elasticity value exceeds one, meaning quantity demanded changes more than price changes.
  • Inelastic Demand
    Exists when elasticity is less than one, so quantity demanded changes less than price changes.
  • Unit Elastic
    A point where elasticity equals one, marking maximum total revenue on the demand curve.
  • Total Revenue
    Calculated as price times quantity sold, its relationship with price changes depends on elasticity.
  • Demand Curve
    A graphical representation showing how quantity demanded varies with price, highlighting elastic, inelastic, and unit elastic regions.