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Elasticity
Key Terms for Elasticity
Buyer
-
Someone who purchases goods and services from a seller for
money.
Competition
-
In a market economy, competition occurs between large numbers of
buyers and sellers who vie for the opportunity to buy or sell goods and
services. The competition among buyers means that prices will never
fall very low, and the competition among sellers means that prices will never
rise very high. This is only true if there are so many buyers and sellers that
none of them has a significant impact on the market equilibrium.
Demand
-
Demand refers to the amount of goods and services that buyers
are willing to purchase. Typically, demand decreases with increases in
price; this trend can be graphically represented with a demand curve.
Demand can be affected by changes in income, changes in price, and changes in
relative price.
Demand Curve
-
A demand curve is the graphical representation of the relationship
between quantities of goods and services that buyers are willing to
purchase and the price of those goods and services.
Elastic
-
Describes a supply or demand curve which is relatively responsive to
changes in price. That is, a curve wherein the quantity supplied or demanded
changes easily when the price changes. A curve with an elasticity greater
than or equal to 1 is elastic.
Elasticity
-
Refers to the degree of responsiveness a curve has with respect to price. If
quantity changes easily when price changes, then the curve is elastic; if
quantity doesn't change easily with changes in price, the curve is
inelastic. The numerical equation to determine elasticity is:
Elasticity = (% Change in Quantity)/(% Change in Price)
If elasticity is greater than 1, the curve is elastic. If it is less than 1, it is inelastic. If it equals one, it is unit elastic.
Elasticity = (% Change in Quantity)/(% Change in Price)
If elasticity is greater than 1, the curve is elastic. If it is less than 1, it is inelastic. If it equals one, it is unit elastic.
Elasticity of demand
-
Refers to the degree of responsiveness a demand curve has with
respect to price. If quantity drops a great deal when price goes up, then the
curve is elastic; if quantity doesn't drop easily with increases in
price, the curve is inelastic.
Elasticity of supply
-
Refers to the degree of responsiveness a supply curve has with
respect to price. If quantity increases a great deal when price goes up, then
the curve is elastic; if quantity doesn't increase easily with
increases in price, the curve is inelastic.
Equilibrium Price
-
The price of a good or service at which quantity supplied is
equal to quantity demanded. Also called the market-clearing price.
Equilibrium Quantity
-
Amount of goods or services sold at the equilibrium price.
Because supply is equal to demand at this point, there is no
surplus or shortage.
Goods and Services
-
Products or work that are bought and sold. In a market economy,
competition among buyers and sellers sets the market
equilibrium, determining the price and the quantity sold.
Inelastic
-
Describes a supply or demand curve which is relatively
unresponsive to changes in price. That is, the quantity supplied or
demanded does not change easily when the price changes. A curve with
an elasticity less than 1 is inelastic.
Long Run
-
The distant future, for which buyers and sellers make
"permanent" decisions, such as exiting the market or permanently decreasing
consumption.
Market
-
A large group of buyers and sellers who are buying and
selling the
same good or service.
Market Economy
-
An economy in which the prices and distribution of goods and
services are determined by the interaction of large numbers of buyers and
sellers who have no significant individual impact on prices or quantities.
Market Equilibrium
-
Point at which quantity supplied and quantity demanded are equal, and
prices are market-clearing prices, leaving no surplus or shortage.
Market-clearing Price
-
The price of a good or service at which quantity supplied is
equal to quantity demanded. Also called the equilibrium price.
Seller
-
Someone who sells goods and services to a buyer for money.
Shortage
-
Situation in which the quantity demanded exceeds the quantity supplied
for a good or service; in such a situation, the price of a good is below
equilibrium price.
Short Run
-
The immediate future, for which buyers and sellers make
"temporary" decisions, such as shutting down production or increasing
consumption, for the time being.
Supply
-
Supply refers to the amount of goods and services that sellers
are willing to sell. Typically, supply increases with increases in
price, this trend can be graphically represented with a supply curve.
Supply Curve
-
A supply curve is the graphical representation of the relationship
between quantities of goods and services that sellers are willing to
sell and the price of those goods and services.
Surplus
-
Situation in which the quantity supplied exceeds the quantity demanded
for a good or service; in this situation, the price of a good is above
equilibrium price.
Unit elastic
-
Describes a supply or demand curve which is perfectly responsive to
changes in price. That is, the quantity supplied or demanded changes according
to the same percentage as the change in price. A curve with an elasticity
of 1 is unit elastic.
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