Elasticity

Price elasticity of demand

• Price elasticity is the sensitivity of Qd to changes in P

• A simple way to calculate its Ep = %change in Qd + % change in P  

• Price elasticity is usally shown as an absolute

• it varies along a demand

  • (not a slope)

• substitiutes

• soy milk

• normal

• vacation traveler

Price elasticity of supply

• Price elasticity of supply is higher if:

  • Inputs to production are obtained easily

  • Changes in demand are easily met

• Supply is relative price-inelastic when:

  • Constraints on factors or raw materials

  • unique nature of the good