6.7 Key Terms
Key Terms
A demand curve, occurs when a price change of one percent results in a quantity change of one percent. Fig 6.4 (6.1)
This shows us how quantity demanded is a response to changes in the price of related goods.
Measures the responsiveness of one variable to changes in another variable.
Is one in which the elasticity (in absolute value) is greater than one, indicating high responsiveness to changes in price (Fig 6.2 A). (6.1)
Is one in which the elasticity is greater than one, indicating high responsiveness to changes in price.
Shows how the quantity demanded of a good response to a change in income
Is one in which the elasticity (in absolute value) is less than one, indicating low responsiveness to changes in price (Fig 6.2 A). (6.1)
Is one in which the elasticity is less than one, indicating low responsiveness to changes in price
Will have a negative income elasticity, since if income rises (or falls), the quantity demanded decreases (or increases). (6.4)
To calculate elasticity, instead of using simple percentage changes in quantity and price, economists use the average percent change. (6.1)
% Change in Quantity Demanded: [New Q – Old Q /(New Q +Old Q)/2]×100% /(New Q +Old Q)/2 shows the average of the two quantities
% Change in Price: [New Price – Old Price / (New P +Old P)/2]×100% (New P +Old P)/2 is the average of the two prices
Will have a positive income elasticity, since if income rises (or falls), the quantity demanded also increases (or decreases). (6.4)
is one in which elasticity is infinity, the demand curve is horizontal
is one in which elasticity is infinity, the supply curve is horizontal
is one in which elasticity is zero, the demand curve is vertical
is one in which elasticity is infinity, the supply curve is vertical
shows two goods are substitutes and negative cross-price elasticity shows two goods are complements.
shows how the quantity demanded of a good response to changes in its price.
shows how the quantity supplied of a good response to changes in its price.
