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Own-price elasticity
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A measure of the responsiveness of the quantity demanded of a good to a change in the price of that good; the percentage change in quantity demanded divided by the percentage change in the price of the good.
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perfectly inelastic demand
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the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero
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Perfectly Elastic Demand
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the case where the quantity demanded is infinitely responsive to price and the price elasticity of demand equals infinity
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unitary elasticity
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a situation in which total revenue remains the same when prices change
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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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Goods for which demand goes up when income is higher and for which demand goes down when income is lower.
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inferior goods.
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Goods for which demand tends to fall when income rises.
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cross-price elasticity of demand
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a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
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complements
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two goods for which an increase in the price of one leads to a decrease in the demand for the other
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substitution effect
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when consumers react to an increase in a good's price by consuming less of that good and more of other goods
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income effect
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the change in consumption resulting from a change in real income
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Giffen good
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a good for which an increase in the price raises the quantity demanded
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Veblen good
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as the price of a good rises, people with high incomes begin to buy more of the product.
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Factors of production
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Land, labor, and capital; the three groups of resources that are used to make all goods and services
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production function
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the relationship between quantity of inputs used to make a good and the quantity of output of that good
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diminishing marginal productivity
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The principle that if at least one input of production is fixed, the marginal productivity of additional variable resources will eventually fall, all else 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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shutdown
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a short-run decision not to produce anything because of market conditions
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breakeven point
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the point at which the costs of producing a product equal the revenue made from selling the product
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short-run shutdown point
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a firm's minimum average variable cost; if price drops below minimum average variable cost, the firm will minimize its losses by shutting down
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long-run shutdown point
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the firm should shut down if average revenue is less than average total cost
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economies of scale
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factors that cause a producer's average cost per unit to fall as output rises
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diseconomies of scale
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the property whereby long-run average total cost rises as the quantity of output increases
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minimum efficient scale
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the level of output at which all economies of scale are exhausted
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