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Elasticity Summary definitions

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  • Price Elasticity of Demand
    Ratio of percentage change in quantity demanded to percentage change in price, always expressed as a positive value.
  • Price Elasticity of Supply
    Ratio of percentage change in quantity supplied to percentage change in price, using absolute values for results.
  • Income Elasticity of Demand
    Measures how quantity demanded responds to changes in income; sign indicates if a good is normal or inferior.
  • Cross Price Elasticity of Demand
    Shows how quantity demanded of one good changes with the price of another; sign reveals substitutes or complements.
  • Midpoint Method
    Calculation technique using averages of starting and ending values to find percentage changes for elasticity.
  • Normal Good
    Type of good for which demand increases as consumer income rises, indicated by a positive income elasticity.
  • Inferior Good
    Type of good for which demand decreases as consumer income rises, shown by a negative income elasticity.
  • Substitute
    Good with positive cross price elasticity, meaning demand rises when the price of another good increases.
  • Complement
    Good with negative cross price elasticity, meaning demand falls when the price of another good increases.
  • Unit Elasticity
    Situation where percentage change in quantity equals percentage change in price, maximizing total revenue.
  • Elastic Demand
    Condition where elasticity value exceeds one, indicating quantity demanded changes more than price.
  • Inelastic Demand
    Condition where elasticity value is less than one, indicating quantity demanded changes less than price.
  • Total Revenue
    Product of price and quantity sold, affected by elasticity when price changes.
  • Straight Line Demand Curve
    Graphical representation where elasticity varies along the curve, with a midpoint indicating unit elasticity.
  • Absolute Value
    Mathematical approach ensuring elasticity calculations are positive, especially for price elasticity measures.