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Own-price elasticity
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measure of responsiveness of quantity demanded to change in price
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elastic demand
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A situation in which consumer demand is sensitive to changes in price
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inelastic demand
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situation in which a product's price change has little impact on the quantity demanded by consumers
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Cross Elasticity
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measures the change in demand for one good given price changes in a different, related good
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Income elasticity
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sensitivity of demand for a product relative to changes in income
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Normal goods
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Increase in income leads to an increase in quantity demanded
sign of income elasticity is positive
sign of income elasticity is positive
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Inferior goods
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increase in income leads to decrease in quantity demanded
sign of income elasticity is negative
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complements
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when an increase in price of a related good decreases demand for a good
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substitutes
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when an increase in price of related good increases demand for a good
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Giffen goods
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low income, non-luxury product that defies standard economic and consumer demand theory; Demand rises when the price rises and falls when the price falls
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Veblen good
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Goods that increase in desirability with increasing price.
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marginal returns
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the additional output resulting from a one unit increase in the use of variable inputs, while other inputs are held constant.
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diminishing marginal returns
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a level of production in which the marginal product of labor decreases as the number of workers increases
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Short Run Aggregate Supply
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time period over which some factors of production (land, labor, capital, materials) are fixed
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long-run aggregate supply curve
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all factors of production (costs) are variable over long term
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long-run average total cost curve (LRATC)
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a curve showing the lowest average total cost possible for any given level of output when all inputs of production are variable
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economies of scale
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downward sloping segment of LRATC; cost advantages enterprises obtain due to scale of operation (labor specialization, mass production, investment in tech)
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diseconomies of scale
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upward-sloping segment of LRATC; average unit costs will rise as the scale of the business (and long-run output) increases; inefficiencies with larger size
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