AP®︎ Microeconomics: Topic 2.3 Flashcards

Master key terms and definitions for Topic 2.3 of AP Microeconomics – Price Elasticity of Demand to help you prep for quizzes and the AP exam.

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Term

Elastic, Inelastic, and Unit Elastic Demand

Definition

Greater than 1 is elastic, less than 1 is inelastic, and equal to 1 is unit elastic.

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Elastic, Inelastic, and Unit Elastic Demand
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Greater than 1 is elastic, less than 1 is inelastic, and equal to 1 is unit elastic.

MKT-3.EMKT-3.E.3
Perfectly Elastic and Perfectly Inelastic Demand
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Infinite means quantity changes completely at one price; zero means quantity does not change with price.

MKT-3.EMKT-3.E.3
Absolute Value of Elasticity
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Economists usually ignore the negative sign and compare responsiveness using the coefficient's magnitude.

MKT-3.EMKT-3.E.2
Elasticity Versus Slope
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Responsiveness is based on percentage changes, so it varies along a linear curve even when slope is constant.

MKT-3.EMKT-3.E.2
Elasticity Along a Linear Demand Curve
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It is more elastic at high prices and low quantities, and more inelastic at low prices and high quantities.

MKT-3.EMKT-3.E.2
Total Revenue
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The money a firm receives from sales, calculated as price times quantity sold.

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Determinants of Price Elasticity of Demand
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Responsiveness depends on factors like substitute availability, necessity, budget share, and time to adjust.

MKT-3.EMKT-3.E.4
Price Elasticity of Demand
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The percent change in quantity demanded divided by the percent change in price.

MKT-3.EMKT-3.E.2
Total Revenue Test
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Price and total revenue move opposite for elastic, together for inelastic, and not at all for unit elastic demand.

MKT-3.EMKT-3.E.5
Midpoint Formula
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A method using average price and quantity to calculate percent changes symmetrically.

MKT-3.E