96 Glossary: Elasticity

constant unitary elasticity when a given percentage 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 quantity of good B demanded

elastic demand when the elasticity of demand is greater than 1, indicating a high responsiveness of quantity demanded to changes in price

elasticity the 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

elastic supply when the elasticity of supply is greater than 1, indicating a high responsiveness of quantity supplied to changes in price

growth rate percentage change: the change in quantity divided by the quantity

income elasticity of demand the percentage change in quantity demanded divided by the percentage change in income

inelastic demand when the elasticity of demand is smaller than 1, indicating a low responsiveness of quantity demanded price changes

inelastic supply when the elasticity of supply is smaller than 1, indicating a low responsiveness of quantity supplied to price changes

inferior good a good for which the quantity demanded falls as income rises, and the quantity demanded rises as income falls; income elasticity of demand for an inferior good is negative

infinite elasticity the extremely elastic situation of demand or supply in which the quantity changes by an infinite amount in response to any change in price; also called “perfect elasticity”

normal good a good for which the quantity demanded rises as income rises, and the quantity demanded falls as income falls; income elasticity of demand for a normal good is positive

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 of a good or service demanded divided by the percentage change in price

price elasticity of supply percentage change in the quantity of a good or service supplied divided by the percentage change in price

total revenue the price of an item multiplied by the number of units sold

unitary elasticity when the calculated elasticity is equal to 1, 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 elasticity 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; also called “perfect inelasticity”

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