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Price elasticity of demand (E)
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the percentage change in quantity demanded divided by the percentage change in price E is always a negative number because P and Q are inversely related
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elastic
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segment of demand for which IEI > 1
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inelastic
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segment of demand for which IEI < 1
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unitary elastic
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segment of demand for which IEI = 1
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total revenue (TR)
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the total amount paid to producers for a good or service (TR = P*Q)
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price effect
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the effect on total revenue of changing price holding output constant
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quantity effect
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the effect on total revenue of changing output holding price constant
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if demand is elastic
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TR falls when price increases (and quantity decreases by much more)
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if demand is inelastic
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TR rises when price increases and (quantity decreases by much less)
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interval (or arc) elasticity
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price elasticity calculated over an interval of a demand curve E = change in Q/ change in P * Average P/Average Q
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point elasticity
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a measurement of demand elasticity calculated at a point on a demand curve rather than over an interval
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Marginal revenue (MR)
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the addition to total revenue attributed to selling one additional unit of output; the slope of total revenue
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inframarginal units
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units of output that could have been sold at a higher price had a firm not lowered its price to sell the marginal unit
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Income elasticity (Em)
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a measure of the responsiveness of quantity demanded to changes in income, holding all other variable sin the general demand function constant
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cross-price elasticity (Exr)
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a measure of the responsiveness of quantity demanded to changes in the price of a related good when all the other variables in the general demand function remain constant
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