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Demand elasticity
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A quantitative measurement (coefficient) showing the percentage change in the quantity demanded of a particular product relative to the percentage change in any one of the variables included in the demand function for that product.
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Price elasticity of demand (eP)
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The percentage change in the quantity demanded of a given good, X, relative to a percentage change in its own price, all other factors assumed constant
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Total revenue
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The amount of money received by a producer for the sale of its product, calculated as the price per unit times the quantity sold.
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Elastic demand
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The percentage change in quantity demanded by consumers is greater than the percentage change in price and 0 eP 0 7 1.
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Inelastic demand
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The percentage change in quantity demanded by consumers is less than the percentage change in price and 0 eP 0 6 1.
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Unitary elasticity (or unit elastic)
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The percentage change in quantity demanded is exactly equal to the percentage change in price and 0 eP 0 ∙ 1.
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Arc price elasticity of demand
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A measurement of the price elasticity of demand where the base quantity or price is calculated as the average value of the starting and ending quantities or prices.
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Point price elasticity of demand
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A measurement of the price elasticity of demand calculated at a point on the demand curve using infinitesimal changes in prices and quantities.
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Total revenue function
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The functional relationship that shows the total revenue (price times quantity) received by a producer as a function of the level of output.
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Average revenue
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Total revenue per unit of output. Average revenue equals the price of the product by definition.
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Average revenue function
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The functional relationship that shows the revenue per unit of output received by the producer at different levels of output.
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Marginal revenue
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The additional revenue that a firm takes in from selling an additional unit of output or the change in total revenue divided by the change in output.
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Marginal revenue function
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The functional relationship that shows the additional revenue a producer receives by selling an additional unit of output at different levels of output.
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Perfectly inelastic demand
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Zero elasticity of demand, illustrated by a vertical demand curve, where there is no change in quantity demanded for any change in price. Perfectly (or infinitely) elastic demand Infinite elasticity of demand, illustrated by a horizontal demand curve, where the quantity demanded would vary tremendously if there were any changes in price.
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Income elasticity of demand
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The percentage change in the quantity demanded of a given good, X, relative to a percentage change in consumer income, assuming all other factors constant.
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Necessity
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A good with an income elasticity between 0 and 1, where the expenditure on the good increases less than proportionately with changes in income.
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Luxury
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A good with an income elasticity greater than 1, where the expenditure on the good increases more than proportionately with changes in income
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Cross-price elasticity of demand
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The percentage change in the quantity demanded of a given good, X, relative to the percentage change in the price of good Y, all other factors held constant.
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Advertising elasticity of demand
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The percentage change in the quantity demanded of a good relative to the percentage change in advertising dollars spent on that good, all other factors held constant.
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