# Microeconomics Chapter 6

 Price elasticity of demand The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price. %ΔQd / %ΔP Elastic Demand A demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price. %ΔQd > |1| Inelastic Demand A demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price.%ΔQd < |1| Unit-elastic Demand Demand is unit-elastic when the percentage change in quantity demanded is equal to the percentage change in price. %ΔQd = |1| Midpoint Formula Price elasticity of demand is the difference between Q1 and Q2 divided by the average of Q1 and Q2 divided by the difference between P1 and P2 divided by the average of P1 and P2. Perfectly Inelastic Demand The case where the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero. Perfectly Elastic Demand THe case where the quantity demanded is infinitely responsive to price, and the price elasticity of demand equals infinity. How does time relate to product demand? As more time passes, the higher the demand for the product becomes. Narrowly Defined Market consumers have more substitutes available relationship between narrowly defined and elasticity The more narrowly defined a market is, the more elastic the demand will be relaitonship between the necessity demand curve and the luxury demand curve. The demand curve for luxury items is more elastic than the demand curve for a necessity. Total Revenue The total amount of funds received by a seller of a good or service, calculated by multiplying price per unit by the number of units sold. Cross-price Elasticity of Demand The percentage change in quantity demanded of one good divided by the percentage change in the price of another good. Income Elasticity of Demand The responsiveness of quantity demanded to changes in income.%ΔQd / %ΔIncome Price Elasticity of Supply The responsiveness of the quantity supplied to a change in price.%ΔQs / %ΔP Elastic effect on total revenue of an increase in price Total revenue falls Inelastic effect on total revenue of an increase in price Total revenue rises Unit-elastic effect on total revenue of an increase in price Total revenue unchanged Substitutes' value of cross-price elasticity Positive Complements' value of cross-price elasticity Negative Unrelated products value of cross-price elasticity Zero AuthorAnonymous ID7478 Card SetMicroeconomics Chapter 6 DescriptionElasticity: The responsiveness of Demand and Supply Updated2010-02-20T22:11:54Z Show Answers