Define the following terms and explain their importance to the study of economics
a. price elasticity
b. complements
c. substitutes
d. cross elasticity
e. supply elasticity
a. Price elasticity is the ratio of the percentage change in quantity demanded to the percentage change in price that brings about the change in quantity demanded. The term is used extensively in economic predictions.
b. Two goods are called complements if an increase in the quantity consumed of one increases the quantity demanded of the other, all other factors remaining constant.
c. Two goods are called substitutes if an increase in the quantity consumed of one cuts the quantity demanded of the other, all other factors remaining constant.
d. Cross-elasticity of demand for some good X to a change in the price of another good Y is the ratio of the percentage change in quantity demanded of X to the percentage change in the price of Y that brings about the change in quantity demanded. This is used in antitrust analysis in determining the boundary of a market.
e. Supply elasticity is the ratio of the percentage change in quantity supplied to the percentage change in price that brings about the change in quantity supplied. The term is used extensively in economic predictions.
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