Key Terms

constant unitary elasticity: when a given percent price change in price leads to an equal percentage change in quantity demanded or supplied

cross-price elasticity of demand: the percentage change in the quantity of good A that is demanded as a result of a percentage change in the price of good B

elastic demand: when the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

elastic supply: when the elasticity of either supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

elasticity: an economics concept that measures responsiveness of one variable to changes in another variable

elasticity of savings: the percentage change in the quantity of savings divided by the percentage change in interest rates

inelastic demand: when the elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes

inelastic supply: when the elasticity of supply is less than one, indicating that a 1 percent increase in price paid to the firm will result in a less than 1 percent increase in production by the firm; this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop)

infinite elasticity: the extremely elastic situation of demand or supply where quantity changes by an infinite amount in response to any change in price; horizontal in appearance

perfect elasticity: see infinite elasticity

perfect inelasticity: see zero elasticity

price elasticity: the relationship between the percent change in price resulting in a corresponding percentage change in the quantity demanded or supplied

price elasticity of demand: percentage change in the quantity demanded of a good or service divided the percentage change in price

price elasticity of supply: percentage change in the quantity supplied divided by the percentage change in price

tax incidence: manner in which the tax burden is divided between buyers and sellers

unitary elasticity: when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied

wage elasticity of labor supply: the percentage change in hours worked divided by the percentage change in wages

zero inelasticity: the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance

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