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Principles of Economics 3e

Key Terms

Principles of Economics 3eKey Terms
constant unitary elasticity
when a given percent price change in price leads to an equal percentage change in quantity demanded or supplied
cross-price elasticity of demand
the percentage change in the quantity of good A that is demanded as a result of a percentage change in the price of good B
elastic demand
when the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price
elastic supply
when the elasticity of either supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price
elasticity
an economics concept that measures responsiveness of one variable to changes in another variable
elasticity of savings
the percentage change in the quantity of savings divided by the percentage change in interest rates
inelastic demand
when the elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes
inelastic supply
when the elasticity of supply is less than one, indicating that a 1 percent increase in price paid to the firm will result in a less than 1 percent increase in production by the firm; this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop)
infinite elasticity
the extremely elastic situation of demand or supply where quantity changes by an infinite amount in response to any change in price; horizontal in appearance
perfect elasticity
see infinite elasticity
perfect inelasticity
see zero elasticity
price elasticity
the relationship between the percent change in price resulting in a corresponding percentage change in the quantity demanded or supplied
price elasticity of demand
percentage change in the quantity demanded of a good or service divided the percentage change in price
price elasticity of supply
percentage change in the quantity supplied divided by the percentage change in price
tax incidence
manner in which the tax burden is divided between buyers and sellers
unitary elasticity
when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied
wage elasticity of labor supply
the percentage change in hours worked divided by the percentage change in wages
zero inelasticity
the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance
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