Economics Chapter 5

Price elasticity of demand -- a measure of the responsiveness of the quantity demand to changes in price; computed by dividing the percentage change in quantity demand by the percentage change in price
elastic demand -- the price elasticity of demand is greater than 1
inelastic demand -- the price elasticity of demand is less than 1
unitary elastic -- the price elasticity of demand equals 1
perfectly inelastic demand -- the price elasticity of demand equals 0
perfectly elastic demand -- the price of elasticity of demand is infinite
midpoint method -- a method of computing a percentage change by dividing the change in the variable by the average value of the variable, or the midpoint between the old value in the new one
income elasticity of demand -- a measure of the responsiveness of the quantity demanded to changes in consumer income; computed by dividing the percentage change in the quantity demanded by the percentage change in income
Cross elasticity of demand -- a measure of the responsiveness of the quantity demanded to changes in the price of a related good; computed by dividing the percentage change in the quantity demanded of one good (X) by the percentage change in the price of another good (Y)
Price elasticity of supply -- a measure of the responsiveness of the quantity supplied to changes in price; computed by dividing the percentage change in quantity supplied by the percentage change in price
perfectly inelastic supply -- the price elasticity of supply equals 0
perfectly elastic supply -- the price elasticity of supply is infinite
Price change formula -- a formula that shows the percentage change in equilibrium price resulting from a change in demand or supply, given values for the price elasticity of supply and the price elasticity of demand

The law of demand tells us that an increase in the price of a product will decrease the quantity demanded, ceteris paribus. If we know the price elasticity of demand that good, we can determine just how much less will be sold at the higher price. Similarly, if we know the price elasticity of supply for product, we can determine just how much more of it will be supplied at a higher price.

The price elasticity of demand -- defined as the percentage change in quantity demanded divided by the percentage change in price -- measures the responsiveness of consumers to changes in price.

Demand is relatively elastic if there are good substitutes.

If demand is elastic, there is a negative relationship between price and total revenue. If demand is inelastic, there is a positive relationship between the price and total revenue.
The price elasticity of supply -- defined as the percentage change in quantity supplied divided by the percentage change in price -- measures the responsiveness of producers to changes in price.

If we know the elasticity is of supply and demand, we can predict the percentage change in price resulting from a change in demand or supply.