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Price elasticity of demand
Measures the percentage change in quantity demanded of a good when ist price changes. / Theprice elasticity of demand (sometimes simply calledprice elasticity) measures how much the quantity demanded of a good changes when its price changes. The precise def nition of price elasticity is the percentage change in quantity demanded divided by the percentage change in price. The price elasticities of demand for individual goods are determined by the economic characteristics of demand. Price elasticities tend to be higher when the goods are luxuries, when substitutes are available, and when consumers have more time to adjust their behavior. By contrast, elasticities are lower for necessities, for goods with few substtutes, and for the short run.
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Price elasticity of supply
Measures the percentage change in quantity supplied of a good when ist price changes. / More precisely, theprice elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.
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Elastic demand
Percentage change in quantity demanded is greater than percentage change in price (>1 or infinite)
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Inelastic demand
Percentage change in quantity dtmanded is less than percentage change in price (<1 or 0)
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Unit-elastic demand
Means that total revenue will not change when the price of the good changes. (=1)
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perfectly elastic
Demand or supply is infinitely responsive to changes in price.
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Perfectly inelastic
Demand or supply is not responsive at all to changes in price.
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Total revenue
the multiplicative product of price and quantity sold. / is by def nition equal to price times quantity (orP Q ). If consumers buy 5 units at $3 each, total revenue is $15. If you know the price elasticity of demand, you know what will happen to total revenue when price changes: 1. When demand is price-inelastic, a price decrease reduces total revenue. 2. When demand is price-elastic, a price decrease ncreases total revenue. 3. In the borderline case of unit-elastic demand, a price decrease leads to no change in total revenue