# C04 - Elasticity

## 14 terms · Chapter 4

### Elasticity

A measure of response to change.

### Price Elasticity of Demand

A measure of consumer response to a change in the price of the current item. (Ed = Price Elasticity of Demand)

### Elastic Demand

Occurs when consumers are highly responsive to a change in price of the current item. Ed > 1

### Inelastic Demand

Occurs when consumers are not highly responsive to a change in price of the current item. Ed < 1

### Determinants of Elastic Demand

Many close substitutes, luxury item, large % of income needed to purchase, long reaction time, durable or non-perishable good.

### Determinants of Inelastic Demand

Few or no close substitutes, necessity item, small % of income needed to buy, short reaction time, non-durable or perishable good.

### Total Revenue

Total monies earned from the sale of an item. TR = P X Qd, where TR = Total Revenue, P = Price, and Qd = Quantity demanded at that price.

### TR and Elastic Demand

When demand for a product is elastic, P and TR move in OPPOSITE directions. If P increases (decreases) TR will decrease (increase.)

### TR and Inelastic Demand

When demand for a product is inelastic, P and TR move in the SAME directions. If P increases (decreases) TR will increase (decrease.)

### TR and Unitary Elastic Demand

When demand for a product in unitary elastic, changes in P will not impact TR.

### Income Elasticity of Demand

A measure of consumer response to a change in the consumer's income. (Ei = Income Elasticity of Demand)

### Cross Price Elasticity of Demand

A measure of consumer response to purchases of one good when the price of another item changes. (Ecp = Cross Price Elasticity of Demand)

### Price Elasticity of Supply

A measure of producer response to a change in the price of the current item. (Es = Price Elasticity of Supply)

### Determinant of Price Elasticity of Supply

Time is the main determinant of price elasticity of supply.