lecture 5: price elasticity

measure of flexibility of prices and quantites

price elasticity

adjustment of quantity choices in response to price change

elastic

not much adjustment

inelastic

n = | %change_quantity / %change_price |

equation for price elasticity

elasticity is always ___

positive

n > 1%

magnitude of elasticity

n = 1

magnitude of unitary

0 < n < 1

magnitude of inelasticity

demand and supply are perfectly elastic in the long run, the slope of both are equivalent D = S

ideal market

perfectly inelastic leads to ___

market failure

%change_quantity / %change_income

equation for income elasticity

%change_quantity / %change_{price of sub}

%change_quantity / %change_{price of complement}

equations for cross price elasticity, where a substitute always positive and a complement is always negative