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Economics Vocab Chapter 5
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Terms in this set (18)
price elasticity of demand
the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve
midpoint method
a technique for calculating the percent change in which changes in a variable are compared with the average, or midpoint, of the starting and final values
perfectly inelastic demand
the case in which the quantity demanded does not respond at all to changes in the price; the demand curve is a vertical line
perfectly elastic:
Demand is perfectly elastic when any price increase will cause the quantity demanded to drop to zero. When demand is perfectly elastic, the demand curve is a horizontal line
elastic demand
when the price elasticity of demand is greater than 1
inelastic demand
when the price elasticity of demand is less than 1
unit-elastic demand
the case in which the price elasticity of demand is exactly 1
total revenue
the total value of sales of a good or service. It is equal to the price multiplied by the quantity sold.
cross-price elasticity of demand
a measure of the effect of the change in the price of one good on the quantity demanded of the other; it is equal to the percent change in the quantity demanded of one good divided by the percent change in the price of another good
income elasticity of demand
the percent change in the quantity of a good demanded when a consumer's income changes divided by the percent change in the consumer's income
income-elastic demand
when the income elasticity of demand for a good is greater than 1
income-inelastic demand
when the income elasticity of demand for a good is positive but less than 1
price elasticity of supply
a measure of the responsiveness of the quantity of a good supplied to the price of that good; the ratio of the percent change in the quantity supplied to the percent change in the price as we move along the supply curve
perfectly inelastic supply
the case in which the price elasticity of supply is zero, so that changes in the price of the good have no effect on the quantity supplied; the perfectly inelastic supply curve is a vertical line
perfectly elastic supply
the case in which even a tiny increase or reduction in the price will lead to very large changes in the quantity supplied, so that the price elasticity of supply is infinite; the perfectly elastic supply curve is a horizontal line
excise tax
a tax on sales of a good or service
tax rate
the amount of tax people are required to pay per unit of whatever is being taxed
administrative costs
(of a tax) the resources used by government tocollect the tax, and by taxpayers to pay it, over and above the amount of thetax, as well as to evade it
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