Chapter 5

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Elasticity and Its Application
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Elasticity a measure of the responsiveness of quantity demanded or quantity supplied to change in one of its determinants
Price Elasticity of Demand a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
Total Revenue (TR) the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold
Income Elasticity of Demand a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income
Cross-price Elasticity of Demand 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 price of the second good
Price Elasticity of Supply a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price
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