TOPIC 5: Price Elasticity, Income Elasticity, Cross Elasticity, & Elasticity of Supply

Elastic

Price Elasticity

Elastic, Inelastic, Unit Elastic, Perfectly Elastic, or Perfectly Inelastic?

The Price Elasticity is _________ when the percentage change in price resulted in a larger percentage change in quantity demanded or supplied (responsive.)

Inelastic

Price Elasticity

Elastic, Inelastic, Unit Elastic, Perfectly Elastic, or Perfectly Inelastic?

The Price Elasticity is _________ when the percentage change in price resulted in a smaller percentage change in quantity demanded or supplied.

Unit Elastic

Price Elasticity

Elastic, Inelastic, Unit Elastic, Perfectly Elastic, or Perfectly Inelastic?

The Price Elasticity is _________ when the percentage change in price resulted in an equal percentage change in quantity demanded or supplied.

Perfectly Elastic

Price Elasticity

Elastic, Inelastic, Unit Elastic, Perfectly Elastic, or Perfectly Inelastic?

The Price Elasticity is _________ when a small change in price might cause the consumers or producers to be highly responsive.

Perfectly Inelastic

Price Elasticity

Elastic, Inelastic, Unit Elastic, Perfectly Elastic, or Perfectly Inelastic?

The Price Elasticity is _________ means consumers and producers are not responsive at all to any price changes.

Perfectly Inelastic

Price Elasticity

Elastic, Inelastic, Unit Elastic, Perfectly Elastic, or Perfectly Inelastic?

When the Elasticity Value (E) = 0, this means that the Price Elasticity is _________.

Inelastic

Price Elasticity

Elastic, Inelastic, Unit Elastic, Perfectly Elastic, or Perfectly Inelastic?

When the Elasticity Value (E) < 1, this means that the Price Elasticity is _________.

Unit Elastic

Price Elasticity

Elastic, Inelastic, Unit Elastic, Perfectly Elastic, or Perfectly Inelastic?

When the Elasticity Value (E) = 1, this means that the Price Elasticity is _________.

Elastic

Price Elasticity

Elastic, Inelastic, Unit Elastic, Perfectly Elastic, or Perfectly Inelastic?

When the Elasticity Value (E) > 1, this means that the Price Elasticity is _________.

Perfectly Elastic

Price Elasticity

Elastic, Inelastic, Unit Elastic, Perfectly Elastic, or Perfectly Inelastic?

When the Elasticity Value (E) = ∞, this means that the Price Elasticity is _________.

Income Elasticity

Types of Elasticity

_________ of Demand is the percentage change in quantity demanded caused by a 1 percent change in income. (Y = income)

Income-Elastic

Income Elasticity

Income-Elastic, Income-Inelastic, or Negative Income Elasticity?

→ Positive income elasticity (normal good - luxury)

Income-Elastic

Income Elasticity

Income-Elastic, Income-Inelastic, or Negative Income Elasticity?

→ Ey > 1

Income-Elastic

Income Elasticity

Income-Elastic, Income-Inelastic, or Negative Income Elasticity?

→ (%) Quantity demanded > (%) Income

Income-Inelastic

Income Elasticity

Income-Elastic, Income-Inelastic, or Negative Income Elasticity?

→ Positive income elasticity (normal good - necessity)

Income-Inelastic

Income Elasticity

Income-Elastic, Income-Inelastic, or Negative Income Elasticity?

→ 0 < Ey < 1

Income-Inelastic

Income Elasticity

Income-Elastic, Income-Inelastic, or Negative Income Elasticity?

→ (%) Quantity demanded < (%) Income

Negative Income Elasticity

Income Elasticity

Income-Elastic, Income-Inelastic, or Negative Income Elasticity?

→ Inferior good

Negative Income Elasticity

Income Elasticity

Income-Elastic, Income-Inelastic, or Negative Income Elasticity?

→ Ey < 0

Negative Income Elasticity

Income Elasticity

Income-Elastic, Income-Inelastic, or Negative Income Elasticity?

→ When quantity demanded decreases as income increases

Normal

Income Elasticity - Type of Good

Fill in the table below:

Change in Income	Change in Demand	Income Elasticity	Type of Good
Increase	Increase	+

Inferior

Income Elasticity - Type of Good

Fill in the table below:

Change in Income	Change in Demand	Income Elasticity	Type of Good
Increase	Decrease	-

Inferior

Income Elasticity - Type of Good

Fill in the table below:

Change in Income	Change in Demand	Income Elasticity	Type of Good
Decrease	Increase	-

Normal

Income Elasticity - Type of Good

Fill in the table below:

Change in Income	Change in Demand	Income Elasticity	Type of Good
Decrease	Decrease	+

Cross Elasticity

Types of Elasticity

__________ of demand shows the percentage change in the quantity demanded of one good when the price of another good changes

Substitutes

Cross Elasticity
Substitutes, Complements, or Non-related?

→ A price increase in one leads to a rise in demand for the other.

Substitutes

Cross Elasticity
Substitutes, Complements, or Non-related?

→ Exy > 0

Complements

Cross Elasticity
Substitutes, Complements, or Non-related?

→ A price increase in one leads to a decrease in demand for the other.

Complements

Cross Elasticity
Substitutes, Complements, or Non-related?

→ Exy < 0

Non-related

Cross Elasticity
Substitutes, Complements, or Non-related?

→ A change in the price of one does not affect the demand for the other.

Non-related

Cross Elasticity
Substitutes, Complements, or Non-related?

→ Exy = 0

Substitutes

Cross Elasticity - Relationship between the Goods

Change in the price of another good	Change in demand for the first good	Cross elasticity between the goods	Relationship between the goods
Increase	Increase	+

Complements

Cross Elasticity - Relationship between the Goods

Change in the price of another good	Change in demand for the first good	Cross elasticity between the goods	Relationship between the goods
Increase	Decrease	-

Complements

Cross Elasticity - Relationship between the Goods

Change in the price of another good	Change in demand for the first good	Cross elasticity between the goods	Relationship between the goods
Decrease	Increase	-

Substitutes

Cross Elasticity - Relationship between the Goods

Change in the price of another good	Change in demand for the first good	Cross elasticity between the goods	Relationship between the goods
Decrease	Decrease	+

Elasticity of Supply

Types of Supply

Price _________ is the measure of the responsiveness of the quantity supplied of a good to changes in price.

Perfectly Inelastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ Es = 0 (absolutely unresponsive)

Perfectly Inelastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ Unique Goods that have no substitutes or alternatives

Inelastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ The producers limit their production even if the price increases

Inelastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ The percentage change in price is insignificant

Inelastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ 0 < Es < 1

Inelastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ (%) Quantity demanded < (%) Price

Unit Elastic

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ Es = 1

Elastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ There is an increase in output produced, even if the cost incurred by the entrepreneur in making the good increases

Elastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ There is a considerable increase in the price of goods being sold

Elastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ Es > 1

Elastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ (%) Quantity demanded > (%) Price

Perfectly Elastic Supply

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

→ Es = ∞

Perfectly Elastic

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

When the Price Elasticity of Supply (E_s) = ∞, this means that the Elasticity of Supply is _________.

Elastic

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

When the Price Elasticity of Supply (E_s) > 1, this means that the Elasticity of Supply is _________.

Unit Elastic

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

When the Price Elasticity of Supply (E_s) = 1, this means that the Elasticity of Supply is _________.

Inelastic

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

When the Price Elasticity of Supply (E_s) < 1, this means that the Elasticity of Supply is _________.

Perfectly Inelastic

Elasticity of Supply

Perfectly Inelastic Supply, Inelastic Supply, Unit Elastic, Elastic Supply, or Perfectly Elastic Supply?

When the Price Elasticity of Supply (E_s) = 0, this means that the Elasticity of Supply is _________.

1) Shorter
2) Inelastic

Determinants of the Price Elasticity of Supply

Length of Time: The 1)_________ the time period, the more 2)_________ the supply for a product.

1) Inputs
2) Production

Determinants of the Price Elasticity of Supply

Length of Time: The _________ the time period, the more _________ the supply for a product.

Reason:
Because it is harder to get additional 1)_________ to increase 2)_________.

1) Longer
2) Elastic

Determinants of the Price Elasticity of Supply

Length of Time: A _________ time period results in an 2)_________ supply.

Flexible

Determinants of the Price Elasticity of Supply

Production Capacity: A _________ production capacity is more elastic.

Inflexible

Determinants of the Price Elasticity of Supply

Production Capacity: An _________ production capacity is more inelastic.