econ - elasticity

price elasticity of demand

a measure of how responsive buyers are to price changes

price elasticity of demand formula

% change in quantity demanded / % change in price

elastic

when the absolute value of the percent change in quantity is larger than the absolute value of the percent change in price, which means that the absolute value of the price elasticity is greater than 1

buyers are responsive to price

inelastic

when the absolute value of the percent change in quantity is smaller than the absolute value of the percent change in price, which means that the absolute value of the price elasticity is less than 1

buyers are not responsive to price changes

unit elastic

when the absolute value of the price elasticity of demand is exactly equal to 1

perfectly elastic

when any change in price leads to an infinitely large change in quantity

perfectly inelastic

when quantity does not respond at all to a price change

5 determining factors of price elasticity of demand

1. more competing products means greater elasticity

2. specific brands tend to have more elastic demand than categories of goods

3. necessities have less elastic demand

4. consumer search makes demand more elastic

5. demand gets more elastic over time (more time to adjust)

percent change in quantity formula

percent change in price formula

total revenue

total amount you receive from buyers

price x quantity

cross-price elasticity of demand

a measure of how responsive the demand of one good is to price changes of another

cross-price elasticity of demand formula

cross-price elasticity is positive for ?

substitutes

cross-price elasticity is negative for ?

complements

income elasticity of demand

a measure of how responsive the demand for a good is to changes in income

income elasticity of demand formula

price elasticity of supply

a measure of how responsive sellers are to price changes

price elasticity of supply formula

5 determining factors of price elasticity of supply

1. inventories make supply more elastic

2. easily available variable inputs make supply elastic

3. extra capacity makes supply elastic

4. easy entry and exit make supply more elastic

5. over time, supply becomes more elastic