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SOE Ch 4 Vocab
Elasticity: A Measure of Response
13
Economics
Undergraduate 1
10/28/2011

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Term
Price Elasticity of Demand
Definition
A measure of the responsiveness of the quantity demanded to changes in price; equal to the absolute value of the percentage change in quantity demanded divided by the percentage change in price
Term
Elastic Demand
Definition
The price elasticity of demand is greater than one, so the percentage change in quantity exceeds the percentage change in price
Term
Inelastic Demand
Definition
The price elasticity of demand is less than one so the percentage change in quantity is less than the percentage change in price
Term
Unit elastic Demand
Definition
The price elasticity of demand is one, so the percentage change in quantity equals the percentage change in price
Term
Perfectly inelastic Demand
Definition
the price elasticity of demand is zero
Term
Perfectly elastic demand
Definition
The price elasticity of demand is infinite
Term
Total Revenue
Definition
The money a firm generates from selling its product
Term
Income Elasticity of Demand
Definition
A measure of the responsiveness of demand to changes in consumer income equal to the percentage change in the quantity demanded divided by the percentage change in income
Term
Cross-Price elasticity of demand
Definition
A measure of the responsiveness of demand to changes in the price of another good; equal to the percentage change in quantity demanded of one good (X) divided by the percentage change in the price of another good (Y)
Term
Price elasticity of Supply
Definition
A measure of the responsiveness of the quantity supplied to changes in price; equal to the percentage change in quantity supplied divided by the percentage change in price
Term
Principle of Diminishing Returns
Definition
Suppose output is produced with two or more inputs, and we increase one input while holding the other input or inputs fixed. Beyond some point-called the point of diminishing returns-output will increase at a decreasing rate
Term
Perfectly Inelastic Supply
Definition
The price elasticity of supply equals zero
Term
Perfectly elastic supply
Definition
The price elasticity of supply is equal to infinity
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