Economics: Elasticity and Demand

A measure of how responsive the quantity demanded of a good is to a change in its price, holding all other factors constant.

Calculated as the percentage change in quantity demanded divided by the percentage change in price.

The Greek letter used to symbolize price elasticity of demand.

The average of the initial price and new price when calculating price elasticity of demand.

The average of the initial quantity demanded and the new quantity demanded when calculating price elasticity of demand.

Latin phrase meaning "all other things being equal."

The change in quantity demanded expressed as a percentage of the average quantity demanded.

The change in price expressed as a percentage of the average price.

Measures how responsive demand is to small price changes.

Measures average elasticity between two price points.

Demand isn't very responsive to price changes.

Demand is very responsive to price changes.

Quantity demanded is constant no matter the price

Measures the responsiveness of quantity demanded to a price change.

Numerical value representing the degree of responsiveness of demand to price changes.

Percentage change in quantity equals percentage change in price.

Demand with an infinitely large price elasticity, meaning a horizontal demand curve. Any price change results in a complete shift in quantity demanded to zero or infinity.

Demand where the percentage change in price is exactly equal to the percentage change in quantity demanded. This is the midpoint between elastic and inelastic.

Factors that influence how responsive demand is to price changes for a good or service.

More substitutes a good has, the more price elastic its demand is likely to be.

The larger the percentage of income spent on a commodity, generally the more price elastic its demand is likely to be.

The longer the time allowed for adjustment, the more likely demand becomes elastic. Consumers need time to switch products or adjust to new prices.

Necessities (like food) tend to have inelastic demand, while luxuries (like expensive cars) tend to be more price elastic.

Graph showing the relationship between the price of a good and the quantity demanded at different prices, all other factors remaining constant.

Commodities like tobacco and alcohol, whose demand is relatively unresponsive to price changes.

Measures how changes in consumer income affect the quantity of a good demanded.

Goods whose demand increases as consumer income increases.

Goods with income elasticity of demand between 0 and 1, meaning demand rises with income but less than proportionately.

Goods with income elasticity of demand greater than 1, meaning demand rises more than proportionately to a change in income.

Goods whose demand decreases as consumer income increases.

Measures how a change in the price of one good affects the demand for another good.

Two goods that are frequently bought and used together.

Demand that responds significantly to price changes, leading to a larger percentage change in quantity demanded than the percentage change in price.

Demand that doesn't respond much to price changes; a percentage change in price results in a smaller percentage change in quantity demanded.

The total amount of money a producer receives from selling a product (quantity demanded * price per unit).

For elastic demand, a price cut increases total revenue. For inelastic demand, a price cut decreases total revenue. For unitary elasticity, price changes don't affect total revenue.

A situation where the percentage change in quantity demanded is equal to the percentage change in price, and total revenue stays constant.

Changes in butter prices and the quantity of margarine demanded will have the same effect - both increase or both decrease.

Moving down the demand curve from A to E shows elasticity decreasing but still above 1, leading to consistently increasing total revenue.

Producers use price elasticity to predict how a price change will affect total revenue received.

Total spending remains constant when price changes.

Total spending decreases as price rises, demand is unresponsive to price changes.

Quantity demanded doesn't change at different price levels.

Supply's responsiveness to price changes depends on the timeframe: momentary, short-run, or long-run.

Percentage change in quantity supplied divided by the percentage change in price.

Supply is perfectly inelastic(fixed quantity available regardless of price).

A 1% price decrease leads to a 2.5% increase in quantity demanded.

A 10% decrease in electricity use.