📈 Demand and Supply Elasticities

Q: What is price elasticity of demand?

A: The % change in quantity demanded from a 1% change in price.

Q: How do you calculate point elasticity of demand?

A: ε = (∂q/∂p) × (p/q)

• Slope

• Price / quantity demanded

When is demand elastic?

When |ε| > 1.

Q: When is demand inelastic?

A: When |ε| < 1.

Q: What happens to revenue if price increases and demand is elastic?

A: Revenue decreases.

Q: What happens to revenue if price increases and demand is inelastic?

A: Revenue increases.

Q: What factors make demand more elastic?

A: More substitutes, luxury goods, larger share of income, longer time frame.

Q: What is cross-price elasticity?

A: Measures how the quantity of good A changes in response to price changes in good B.

Q: What does a positive cross-price elasticity indicate?

A: The goods are substitutes.

Q: What does income elasticity measure?

A: The responsiveness of demand to changes in income.