ELASTICITY

Cards (24)

  • Elasticity is a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
  • Price Elasticity of Demand - Measures the percentage change in quantity demanded brought about by a percentage change in price
  • Variety of Demand Curves (based on their type of price elasticities) - Elastic demand, Inelastic demand, Unit elastic/unitary demand
  • Elastic demand: occurs when a percentage change in price results to a greater than proportionate percentage change in quantity demanded (Ed > 1)
  • Inelastic demand: occurs when a percentage change in price results to a less than proportionate percentage change in quantity demanded (Ed < 1)
  • Unit elastic/unitary demand: occurs when a percentage change in price results to a proportionate percentage change in quantity demanded (Ed = 1)
  • Extreme variety of Demand Curves (based on their type of price elasticities) - Perfectly elastic, Perfectly inelastic
  • Perfectly elastic: horizontal demand curve (Ed = ∞)
  • Perfectly inelastic: vertical demand curve (Ed = 0)
  • Price Elasticity of Supply - Measures the percentage change in quantity supplied brought about by a percentage change in price
  • Variety of supply curves (based on their type of price elasticities) - Elastic supply, Inelastic supply, Unit elastic/unitary supply
  • Elastic supply: occurs when a percentage change in price results to a greater than proportionate percentage change in quantity supplied
    (Es > 1)
  • Inelastic supply: occurs when a percentage change in price results to a less than proportionate percentage change in quantity supplied
    (Es < 1)
  • Unit elastic/unitary supply: occurs when a percentage change in price results to a proportionate percentage change in quantity supplied (Es=1)
  • Extreme variety of Supply Curves (based on their type of price elasticities) - Perfectly elastic, Perfectly inelastic
  • Perfectly elastic: horizontal supply curve (Es = ∞)
  • Perfectly inelastic: vertical supply curve (Es =0)
  • INCOME ELASTICITY OF DEMAND
    • measures the degree to which consumers respond to a change in their incomes by buying more or less of a particular good
    • percentage change in quantity demanded brought about by the percentage change in income
  • If the computed income elasticity yields a negative coefficient, we have computed for an inferior good, be it elastic, inelastic or unit elastic.
  • If the computed income elasticity yields a positive, elastic (> 1) coefficient, we have computed for a luxury or superior good.
  • If the computed income elasticity yields a positive, inelastic (< 1) coefficient, we have computed for a normal good.
  • CROSS ELASTICITY OF DEMAND
    • measures how sensitive consumer purchases of one product (say, X) are to a change in the price of some other product (say, Y).
    • percentage change in quantity demanded of product X brought about by the percentage change in the price of product Y
    • If the computed cross elasticity of demand yields a positive coefficient (variables move in the same direction), be it elastic, inelastic or unit elastic, we have computed for substitute goods.
    • If the computed cross elasticity of demand yields a negative coefficient (variables move in opposite directions), be it elastic, inelastic or unit elastic, we have computed for complementary goods.