W3: elasticities

consumers buy more

when its cheap, they have more $$, alternatives are higher, compliments lower

elasticity

Measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

formula for elasticity

price elasticity of demand = % change in Quan demanded /% change in price

→ More than 1 – elastic

→ Exactly 1 – unit elastic

→ Less than 1 - inelastic

perfectly elastic

quan demanded responds a lot to price, if it goes up a little there will be A lot less demanded, if it goes down demand will go up more

unit elastic

change in demand reflects price, equal response from both sides

inelastic

demand stays same no matter the price

If Demand inelastic

raise prices to increase Revenue

if demand is elastic

lower prices to increase Revenue

elasticity of supply

how much quantity supplied responds to change in price

% change in Q supplied/ % change in price

elasticity of demand

how much quantity demanded responds to change in price

% change in Q demanded / % change in price

elasticiy of income

how responsive the quantity demanded for a good or service is to a change in income

% change in quantity demanded / % change in income.

short run

less elastic

long run

more elastic