CHAPTER 5: ELASTICITY

Elasticity

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

Price elasticity of demand

measures how much the quantity demanded responds to a change in the price.

How to find Price Elasticity of Demand

[(Q2-Q1)/((Q2+Q1)/2] / [(P2-P1)/((P2+P1)/2]

Elastic Good

Price elasticity of demand >1

Inelastic Good

Price elasticity of demand <1

Unit Elastic

Price elasticity of demand =1

Total revenue

the amount paid by buyers and received by the sellers of a good, calculated as the price of the good times the quantity sold

Income elasticity of demand

measures how the quantity demanded changes as consumer income changes.

Cross-price elasticity of demand

measures how the quantity demanded of one good responds to a change in the price of another.

Price elasticity of supply

measures how much the quantity supplied responds to changes in the price.