| Term | Definition |
|---|
| 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. |
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