# Economics for Managers - Chapter 3

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1. Demand elasticity
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.
2. Price elasticity of demand (Ep)
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.
3. Total revenue
The amount of money received by a producer for the sale of its product, calculated as the price per unit times the quantity sold.
4. Elatic demand
The percentage change in quantity demanded by consumers is greater than the percentage change in price and |Ep|>1.
5. Inelastic demand
The percentage change in quantity demanded by consumers is less than the percentage change in price and |Ep|<1.
6. Unitary elasticity (or unit elastic)
The percentage change in quantity demanded is exactly equal to the percentage change in price and |Ep|=1.
7. Elastic demand and total revenue
If demand is elastic, a decrease in price results in an increase in total revenue, and an increase in price results in a decrease in total revenue.
8. Inelastic demand and total revenue
If demand is inelastic, a decrease in price reults in a decrease in total revenue, and an increase increase in price results in an increase in total revenue.
9. Determinants of price elasticity of demand
• 1. Number of substitute goods
• 2. Percent of consumer's income spent on product
• 3. Time period
10. Arc price elasticity of demand
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.
11. Point price elasticity of demand
A measurement of the price elasticity of demand calculated at a point on the demand curve using infinitesimal changes in prices and quantities.
12. Total revenue function
The functional relationship that shows the total revenue(price times quantity) received by a producer as a function of the level of output.
13. Average revenue
Total revenue per unit of output. Average revenue equals the price of the product by definition.
14. Average revenue function
The functional relationship that shows the revenue per unit of output received by the producer at different levels of output.
15. Marginal revenue
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.
16. Marginal revenue function
The functional relationship that shows the additional revenue a producer receives by selling an additional unit of output at different levels of output.
17. Perfectly inelastic demand
Zero elasticity of demand, illustrated by a vertical demand curve, where there is no change in quantity demanded for any change in price.
18. Perfectly (or infinitely) elastic demand
Infinite elasticity of demand, illustrated by ahorizontal demand curve, where the quantity demanded would vary tremendously if there were any changes in price.
19. Income elasticity of demand
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.
20. Necessity
A good with an income elasticity between 0 and 1, where the expenditure on the good increases less than proportionately with changes in income.
21. Luxury
A good with an income elsticity greater than 1, where the expenditure on the good increases more than proportionately with changes in income.
22. Cross-price elasticity of demand
The percentage change in the given good, X, relative to the percentage change in the price of good Y, all other factors held constant.