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Compact Glossary of Elasticities of Demand
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PRICE
ELASTICITIES
A
relationship is described as
Perfectly
elastic or infinitely elastic
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When the
elasticity value is
Infinity
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Which means
that
The smallest
possible increase (decrease) in price causes an infinitely large decrease
(increase) in the quantity demanded.
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Elastic
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Less than
infinity but greater than 1
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The percentage decrease (increase) in the quantity demanded exceeds
the percentage increase (decrease) in price.
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Unit elastic
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1
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The percentage decrease (increase) in the quantity demanded
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Inelastic
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Greater than
zero but less than 1
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The percentage decrease (increase) in the quantity demanded is less
than the percentage increase (decrease) in price.
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Perfectly
inelastic or completely inelastic
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Zero
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The quantity
demanded is the same at all prices.
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CROSS
ELASTICITIES
A
relationship is described as
Perfect
substitutes
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When he
elasticity value is
Infinity
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Which means
that
The smallest
possible increase (decrease) in the price of one good causes an infinitely
large increase (decrease) in the quantity demanded of the other good.
|
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Substitutes
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Positive, less
than infinity
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If the price
of one good increases (decreases) the quantity demanded of the other good
also increases (decreases).
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Independent
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Zero
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The quantity
demanded of one good remains constant regardless of the price of the other
good.
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Complements
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Less than
zero
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The quantity demanded of one good decreases (increases) when the price
of the other good increases (decreases).
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INCOME
ELASTICITIES
A
relationship is described as Income elastic (normal good)
|
When the
elasticity value is Greater than 1
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Which means
that
The
percentage increase (decrease) in the quantity demanded is greater than the
percentage (decrease) in income.
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Income
inelastic (normal good)
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Less than 1
but greater than zero
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The
percentage increase (decrease) in the quantity demanded is less than the
percentage increase (decrease) in income.
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Negative
income elastic (inferior good)
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Less than
zero
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When income
increases (decreases) quantity demanded decreases (increases).
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Monday, June 19, 2017
Compact Glossary of Elasticities of Demand price elasticity, income elasticity, cross elasticity
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