Elasticity

Elasticity - measure of responsibilities to change in prices or income

example of someone needing to pay hospital bill after being stabbed in the neck is an extreme example of not being sensitive to price - (Inelastic)

generally, elastic items make up a large scale of your income, they have few substitutes and their is a long time period before you make your purchase.

cigarette smokers dont care about price, hence there demand curve is more upright (vertical)

soda, there are many types and flavors of soda, an increase in the price of Pepsi will make buyers look for substitutes.

Elastic - large change in QTY

Elasticity:

Is there something you used to buy/eat as a child but no longer buy? (candy, soda)

Is there something you always buy together? (shoes—>shirt—>jacket—>hat)

what do you not buy when you get your first real job? (ramen, cube steak (low quality items))

Elasticity = Percentage change in QTY / percentage change in price (%▲QTY / %▲PRICE) - this is always negative

If price of eggs increased by 20 percent, it caused quantity demanded to drop by 40 percent. (-40/20 =-2)

A one percent change in price, will result a 2 percent change in Quantity.

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Increasing price by 10 percent, will result in a 20 percent decrease in Quantity

|Ed| > 1 (Elastic) - people are responsive to price changes

|Ed| = 1 (unit elastic)

|Ed| < 1 (Inelastic) - not responsive or sensitive to price changes

Income Elasticity = %▲QTY/ %▲INCOME

Ei for Rolls-Royce = 5.0 (luxury)

Ei for Ribeye = 1.5 (luxury)

Ei for food = 0.4 (normal necessity)

Ei for generic toothpaste = -0.8 (inferior)

Ei > 1 (Luxury)

1 > Ei > 0 (normal necessity)

Ei<0 (inferior)

Cross-Price Elasticity %▲Qx / %▲Py

How does a change in price of one good offset the QTY demanded of another good?

Chicken and Steak - Substitutes - Exy > 0

Chicken and BBQ sauce - complement - Exy < 0

Nike shoe and Nike Shirt - complement - Exy < 0

Nike shoe and Hoka shoe - substitute - Exy > 0