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Elasticity
Responsiveness of Qd or Qs to determinants.
Price Elasticity of Demand
△%Qd divided by △%P.
Percent of Change Formula
[(end value - start value) / midpoint] * 100.
Determinants of Price Elasticity
Factors affecting responsiveness of demand.
Substitutes
Goods that can replace each other.
Narrowly Defined Goods
More substitutes available, higher elasticity.
Broadly Defined Goods
Fewer substitutes available, lower elasticity.
Necessities
Essential goods, lower price elasticity.
Luxuries
Non-essential goods, higher price elasticity.
Short Run Elasticity
Limited consumer response to price changes.
Long Run Elasticity
Greater consumer adjustments over time.
Demand Curve Slope
Flatter curves indicate greater elasticity.
Revenue Formula
Revenue equals price multiplied by quantity.
Revenue Effects of Price Increase
Higher price can lead to lower revenue.
Elastic Demand
Price elasticity of demand greater than 1.
Inelastic Demand
Price elasticity of demand less than 1.
Price Elasticity of Supply
% change in Qs divided by % change in P.
Supply Curve Slope
Flatter curves indicate greater supply elasticity.
Determinants of Supply Elasticity
Factors affecting responsiveness of supply.
Availability of Inputs
Impact on production costs and supply elasticity.
Time Factor in Supply
Long-run elasticity usually higher than short-run.
Income Elasticity of Demand
% change in Qd divided by % change in income.
Normal Goods
Income elasticity greater than 0.
Inferior Goods
Income elasticity less than 0.
Cross-Price Elasticity of Demand
Response of demand for one good to another's price.
Substitutes in Cross-Price Elasticity
CPE greater than 0 indicates substitutes.
Complements in Cross-Price Elasticity
CPE less than 0 indicates complements.
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