Transcript No Slide Title

This is a PowerPoint presentation on the fundamentals
of the concept of “elasticity” as used in principles of
economics.
A left mouse click or the enter key will add an
element to a slide or move you to the next slide. The
backspace key will take you back one element or slide.
The escape key will get you out of
the presentation.
Principles of Microeconomics
R. Larry Reynolds
Elasticity
· Elasticity is a concept borrowed from physics
· Elasticity is a measure of how responsive a
dependent variable is to a small change in an
independent variable(s)
· Elasticity is defined as a ratio of the percentage
change in the dependent variable to the
percentage change in the independent variable
· Elasticity can be computed for any two related
variables
Fall '97
Economics 205Principles of Microeconomics
Slide 2
Elasticity [cont. . . ]
· Elasticity can be computed to show the effects of:
· a change in price on the quantity demanded [ “a change in
quantity demanded” is a movement on a demand function]
· a change in income on the demand function for a good
· a change in the price of a related good on the demand
function for a good
· a change in the price on the quantity supplied
· a change of any independent variable on a dependent
variable
Fall '97
Economics 205Principles of Microeconomics
Slide 3
“Own” Price Elasticity
· Sometimes called “price elasticity”
· can be computed at a point on a demand
function or as an average [arc] between two
points on a demand function
· ep, h,e are common symbols used to represent
price elasticity
· Price elasticity [ep] is related to revenue
· “How will a change in price effect the total
revenue?” is an important question.
Fall '97
Economics 205Principles of Microeconomics
Slide 4
Elasticity as a measure of
responsiveness
· The “law of demand” tells us that as the
price of a good increases the quantity that
will be bought decreases but does not tell
us by how much.
· ep [“own”price elasticity] is a measure of
that information]
· “If you change price by 5%, by what
percent will the quantity purchased
change?
Fall '97
Economics 205Principles of Microeconomics
Slide 5
e
p
or,
% change in quantity demanded

% change in price
ep

% DQ
% DP
At a point on a demand function this can be
calculated by:
Q
Q22 -Q
Q11 = DQ
ep =
Fall '97
Q1
=
P2 P-2 P
-1 P=1 DP
P1
Economics 205Principles of Microeconomics
DQ
Q1
DP
P1
Slide 6
+2
DQ
ep =
[2/3 = .66667]
31
Q
=
DP
-2
P71
% DQ = 67%
% DP = -28.5%
[-2/7=-.28571]
Price decreases from $7 to $5
Px
P1 = $7
P2 = $5
A
DP = -2
.
[rounded]
The “own” price elasticity of demand
at a price of $7 is -2.3
P2- P1 = 5 - 7 = DP = -2
DQ = +2
Fall '97
-2.3
This is “point” price elasticity. It is calculated at a point
on a demand function. It is not influenced by the direction
or magnitude of the price change.
B
Q1 = 3
=
Q2 = 5
Q2 - Q1 = 5 - 3 = DQ = +2
D
There is a problem! If the
price changes from $5 to
$7 the coefficient of
elasticity is different!
Qx/ut
Economics 205Principles of Microeconomics
Slide 7
ep =
DQ
-2
[-2/5 = -.4]
5Q1
=
+2
DP
% DQ = -40%
% DP = 40%
= -1
[this is called “unitary elasticity]
[+2/5 = .4]
P51
When the price increases from $5 to $7, the ep = -1 [“unitary”]
In the previous slide, when the price decreased from $7 to $5, ep
The point price elasticity is
different at every point!
There is an
easier way!
Px
P2 = $7
P1 = $5
ep = -2.3
A
DP = +2
B
DQ = -2
Q2= 3
Fall '97
= -2.3
Q1= 5
Economics 205Principles of Microeconomics
ep = -1
D
Qx/ut
Slide 8
By rearranging terms
An easier way!
DQ
Q1
Q1
DP
ep =
DQ
=
Q1
*
P1
D P
P1
ep
Q2= 5
P2- P1 = 5 - 7 = DP = -2
Q2 - Q1 = 5 - 3 = DQ = +2
Then,
DQ
DP
=
+2
-2
DP
*
P1
Q1
this is the
slope of the
demand function
Given that when:
P1 = $7,
Q1 = 3
P2 = $5,
=
DQ
this is a point on
the demand
function
= -1
DQ
= -1
DP
P71
* Q
31
P1 = $7,
= -2.33
Q1 = 3
On linear demand functions the
slope remains constant so you
just put in P and Q
This is the slope of the demand Q = f(P)
Fall '97
Economics 205Principles of Microeconomics
Slide 9
The following information was
given
P1 = $7,
P2 = $5,
Q1 = 3
Q2= 5
$7
The slope of the demand function
DQ
DP
+2
=
-2
= -1
The equation for the demand
function we have been using is
Q = 10 - 1P. A table can be
constructed.
Fall '97
A
B
$5
Q2 - Q1 = 5 - 3 = DQ = +2
P2- P1 = 5 - 7 = DP = -2
[Q = f(P)] is
Q = f (P)
Px
Px must decrease
by 5.
What is the Q
intercept?
Q increases by 5
3
5
D
/
Q
Q=x 10ut
The slope [-1] indicates that for every
1 unit increase in Q, Px will decrease by 1.
Since Px must decrease by 5, Q must
increase by 5
Q = 10 when Px = 0
The slope-intercept form
Q = a10+ -m1 P
Economics 205Principles of Microeconomics
Slide 10
The slope is -1
The intercept is 10
For a simple demand function: Q = 10 - 1P
price
quantity
$0
10
$1
9
$2
8
$3
7
$4
6
$5
5
$6
4
$7
3
$8
2
$9
1
$10
0
Fall '97
ep
0
-.11
-.25
-.43
-.67
-1.
-1.5
-2.3
-4.
-9
undefined
Total
Revenue
using our formula,
ep =
DQ
P1
DP * Q1
the slope is -1, price is 7
P71
DQ
ep = (-1) * Q1 = -2.3
3
DP
at a price of $7, Q = 3
Calculate
Q=1
ep
at P = $9
ep = (-1)
9
1
= -9
Calculate ep for all other
price and quantity
combinations.
Economics 205Principles of Microeconomics
Slide 11
For a simple demand function: Q = 10 - 1P
price
quantity
$0
10
$1
9
$2
8
$3
7
$4
6
$5
5
$6
4
$7
3
$8
2
$9
1
$10
0
Fall '97
ep
0
-.11
-.25
-.43
-.67
-1.
-1.5
-2.3
-4.
-9
undefined
Total
Revenue
0
Notice that at higher prices
the absolute value of the price
elasticity of demand, ep, is
greater.
Total revenue is price times
quantity; TR = PQ.
Where the total revenue [TR]
is a maximum, ep is equal
to 1
9
16
21
24
25
24
In the range where ep < 1, [less
than 1 or “inelastic”], TR increases as
price increases, TR decreases as P
decreases.
21
16
9
0
In the range where ep > 1,
[greater than 1 or “elastic”], TR
decreases as price increases, TR
increases as P decreases.
Economics 205Principles of Microeconomics
Slide 12
To solve the problem of a point elasticity that is different for every price quantity
combination on a demand function, an arc price elasticity can be used. This arc price
elasticity is an average or midpoint elasticity between any two prices. Typically,
the two points selected would be representative of the usual range of prices in the
time frame under consideration.
The formula to calculate the average or arc price
elasticity is:
DQ
P1 + P2
ep =
*
P1 + P2 =
12
P1 = $7,
P2 = $5,
Q1 = 3
Q2= 5
Q1 + Q2
= 8
Q2 - Q1 = 5 - 3 = DQ = +2
P2- P1 = 5 - 7 = DP = -2
ep =
DQ
-1
DP
The average
Fall '97
*
P1 12
+ P2
Px
$7
Q1 + Q2
DP
The average or arc ep between
$5 and $7 is calculated,
A
Slope of demand
B
$5
ep between $5 and $7 is -1.5
DP
= - 1
D
= - 1.5
Q1 8+ Q2
DQ
3
Economics 205Principles of Microeconomics
5
Qx/ut
Slide 13
Given: Q = 120 - 4 P
Price
$ 10
$ 20
$ 25
$ 28
Quantity
e
p
TR
Calculate the point ep at each
price on the table.
Calculate the TR at each price
on the table.
Calculate arc ep at between
$10 and $20.
Calculate arc ep at between
$25 and $28.
Calculate arc ep at between $20 and $28.
Graph the demand function [labeling all axis and functions], identify
which ranges on the demand function are price elastic and which are
price inelastic.
Fall '97
Economics 205Principles of Microeconomics
Slide 14
Given: Q = 120 - 4 P
Price
Quantity
ep
TR
$ 10
80
-.5
$800
$ 20
40
-2
$800
$ 25
20
-5
$500
$ 28
8
-14
$224
Calculate the point ep at each
price on the table.
Calculate the TR at each price
on the table. TR = PQ
Calculate arc ep at between
$10 and $20.
ep = -1
Calculate arc ep at between
$25 and $28.
ep = -7.6
ep = -4
Calculate arc ep at between $20 and $28.
Graph the demand function [labeling all axis and functions], identify
which ranges on the demand function are price elastic and which are
price inelastic. At what price will TR by maximized?
P = $15
Fall '97
Economics 205Principles of Microeconomics
Slide 15
Graphing Q = 120 - 4 P,
TR is a maximum
where ep is -1 or TR’s
slope = 0
Price
When ep is -1 TR is a maximum.
When | ep | > 1 [elastic], TR and P
move in opposite directions. (P has
a negative slope, TR a positive slope.) 30
The top “half” of the demand
function is elastic.
| ep | > 1 [elastic]
ep = -1
| ep | < 1
When | ep | < 1 [inelastic], TR and P
move in the same direction. (P and TR 15
both have a negative slope.)
Arc or average ep is the average
elasticity between two point [or prices]
point
ep is the elasticity at a point or price.
TR
inelastic
60
120 Q/ut
The bottom “half” of the demand
function is inelastic.
Price elasticity of demand describes
how responsive buyers are to change
in the price of the good. The more “elastic,” the more responsive to DP.
Fall '97
Economics 205Principles of Microeconomics
Slide 16
Use of Price Elasticity
· Ruffin and Gregory [Principles of Economics, AddisonWesley, 1997, p 101] report that:
|ep|of gasoline is = .15 (inelastic)
long run |ep|of gasoline is = .78 (inelastic)
short run |ep|of electricity is = . 13 (inelastic)
long run |ep|of electricity is = 1.89 (elastic)
· short run
·
·
·
· Why is the long run elasticity greater than short
run?
· What are the determinants of elasticity?
Fall '97
Economics 205Principles of Microeconomics
Slide 17
Determinants of Price
Elasticity
· Availability of substitutes [greater availability of
substitutes makes a good relatively more elastic]
· Portion of the expenditures on the good to the
total budget [lower portion tends to increase
relative elasticity]
· Time to adjust to the price changes [longer time
period means there are more adjustment possible
and increases relative elasticity
· Price elasticity for “brands” is tends to be more
elastic than for the category of goods
Fall '97
Economics 205Principles of Microeconomics
Slide 18
An application of price elasticity.
The price elasticity of demand for milk is estimated between -.35 and -.5.
Using -.5 as a reasonable figure, there are several important observations that
can be made.
What effect does a
10% increase in the Pmilk
have on the quantity that
individuals are willing to buy?
To solve for % DQ
Multiply both sides by +10%
Since
e
% DQ
-5%(-.5
= p 
(+10%)x
) =% DQ
A 10% increase in the price of milk would
reduce the quantity demanded by about
5%.
If price were decreased by 5%, what
would be the effect on quantity
A 10% increase
demanded?
Fall '97
ep
ep = -.5
in P reduces Q
by 5%
% +10%
DP

% DQ
% DP
x (+10%)
Pmilk
P2
P1
+10%
Economics 205Principles of Microeconomics
-5%
Q2 Q1
Dmilk
Q
Slide 19 milk
% DQ
ep 
% DP
The price elasticity of demand is a measure of
the % DQ that will be “caused” by a % DP.
If the price elasticity of demand for air travel was estimated at -2.5, what
effect would a 5% decrease in price have on quantity demanded ?
-2.5 =
% DQ
%
DP
- 5%
= +12.5% change in quantity demanded
If the price elasticity of demand for wine was estimated at -.8, what
effect would a 6% increase in price have on quantity demanded ?
-.8 =
Fall '97
% DQ
%+6%
DP
= -4.8% decrease in quantity demanded
Economics 205Principles of Microeconomics
Slide 20
If the price elasticity of demand for milk were -.5, the effects
of a price change on total revenue [TR] can also be estimated.
Since ,
% DQ
ep  % DP
When |ep| < 1, demand is “inelastic. “ This means that
the % DQ< % DP. Since the % price
decrease is greater than the % increase in Q,
TR [TR = PQ] will decrease.
When |ep| < 1, a price decrease will decrease TR; a price increase will
increase TR, Price and TR “move in the same direction.” [inelastic demand
with respect to price]
When |ep| > 1, demand is “elastic.” This means that the % DQ> % DP.
When the % price decrease is less than the % increase in Q,
TR [TR = PQ] will increase.
When |ep| > 1, a price decrease will increase TR; a price increase will
decrease TR, price and TR “move in opposite directions.” [elastic demand
wrt price]
Fall '97
Economics 205Principles of Microeconomics
Slide 21
Graphically this can be shown
TR
TR = PQ, so the maximum TR is the
rectangle 0Q1 EP1
Price and
TR move in
opposite
directions
As price rises into the elastic range
the TR will decrease. Notice that
in this range the slope of demand
P
is negative, the slope of TR is
positive
TR
elastic
price rises
P1
0
at the midpoint, ep = -1
+TR
(P2 Q2) is less
P2
Fall '97
TR is a maximum
E
than
Loss in
(P
1 Q
1)
TR
when
DP
Q2
D
Q1
Economics 205Principles of Microeconomics
Q/ut
Slide 22
When price elasticity of demand is
inelastic
TR
TR is a maximum
A price decrease will result in
a decrease in TR [PQ]. notice that
both TR and Demand have a
negative slope in the inelastic
range of the demand function.
Price and TR “move in the same P
direction.”
A price decrease will reduce
TR; a price increase will
increase TR. Note that
this information is useful
but does not provide
information about profits!
Fall '97
TR
at the midpoint, ep = -1
P1
P0
0
E
inelastic
TR = P1 Q1
[Maximum]
results
in a smaller PQ
[TR]
Q1
Economics 205Principles of Microeconomics
D
Q0
Q/ut
Slide 23
“Own” Price Elasticity of
Demand
· ep
is a measure of the responsiveness of buyers to changes
in the price of the good.
· ep will be negative because the demand function is
·
·
negatively sloped.
A linear demand function will have unitary elasticity at its
“midpoint.” AT THIS POINT TR IS A MAXIMUM!
A linear demand function will be more “elastic” at higher
prices and tends to be more “inelastic” in the lower price
ranges
Fall '97
Economics 205Principles of Microeconomics
Slide 24
Inelastic
ep
· When |ep|< 1 [less than 1] the demand is
“inelastic”
· The |%DQ|< |%DP|,buyers are not very
responsive to changes in price.
· An increase in the price of the good
results in an increase in total revenue [TR],
a decrease in the price decreases TR.
Price and TR move in the same direction
Fall '97
Economics 205Principles of Microeconomics
Slide 26
D1 is a “perfectly elastic”
D2
P
perfectly
inelastic
demand function.
For an infinitesimally small
change in price, Q changes
by infinity.
Buyers are very
responsive to price changes. An
infinitely small change in price
changes Q by infinity.
ep 
0
%
DQ
% DP
P
0
ep = 0
perfectly elastic
|ep| = undefined
==undefined
0
D1
Q/ut
D2 is a “perfectly inelastic” demand function, no matter how
much the price changes the same amount is bought. Buyers
are not responsive to price changes! |ep| = 0, perfectly inelastic.
.
.
Fall '97
Economics 205Principles of Microeconomics
Slide 27
Examples
· Goods that are relatively price elastic
· lamb, restaurant meals, china/glassware,
jewelry, air travel [LR], new cars, Fords
· in the long run, |ep|tends to be greater
· Goods that are relatively price inelastic
· electricity, gasoline, eggs, medical care, shoes,
milk
· in the short run, |ep|tends to be less
Fall '97
Economics 205Principles of Microeconomics
Slide 28
Income Elasticity
[normal goods]
ey 
% DQx
% DY
Income elasticity is a measure of the change in
demand [a “shift” of the demand function] that is
“caused” by a change in income.
[Where Y = income]
The increase in income, DY, increases demand
to D2. The increase in demand results in a
larger quantity being purchased at the
same Price [P1]..
At a price of P1 , the quantity demanded
P
given the demand D is Q1 . D is the
demand function when the income is Y1 .
For a “normal good” an increase
in income to Y2 will “shift” the
demand to the right. This is an
increase in demand to D2.
Due to increase
in income,
demand
increases
P1
D2
D
% DY > 0; % DQ> 0; therefore,
ey >0
[it is positive]
Q1
.
Fall '97
Economics 205Principles of Microeconomics
Q2 Q/ut
Slide 29
Income Elasticity [continued. . .]
[normal goods]
% DQx
ey 
% DY
A decrease in income is associated with a decrease in
the demand for a normal good.
At income Y1, the demand D1 represents
the relationship between P and Q. At
a price [P1] the quantity [Q1] is
demanded.
% DY < 0 [negative];
so,
ep > 0 [ positive]
P
For a decrease in income [-DY],
the demand decreases; i.e. shifts
to the left, at the price [P1 ], a
smaller Q2 will be purchased.
A decrease in income,
% DQ < 0 [negative];
P1
decreases
demand
For either an increase or decrease in income
the ep is positive. A positive relationship
[positive correlation] between DY and DQ
is evidence of a normal good.
Fall '97
D2
Q2
Economics 205Principles of Microeconomics
Q1
D1
Q/ut
Slide 30
When income elasticity is positive, the good is considered a “normal
good.” An increase in income is correlated with an increase in the
demand function. A decrease in income is associated with a
decrease in the demand function.
For both increases
e
The greater the value of y,
the more responsive buyers
+
are to a change in their incomes.
When the value of
eeyyy 
and decreases in
income, ey is positive
%
DQ
%%DQ
xx x
+DQ
% DY
+- %%DYDY
ey is greater than 1, it is called a “superior good.”
The |% DQx| is greater than the |% DY|.
Buyers are very responsive to changes in
income. Sometimes “superior goods” are
called “luxury goods.”
.
Fall '97
.
Economics 205Principles of Microeconomics
ey 
% DQx
% DY
Slide 31
Income Elasticity
[inferior goods]
There is another classification of goods where changes in income
shift the demand function in the “opposite” direction.
An increase in income [+DY] reduces demand.
An increase in income reduces
the amount that individuals
are willing to buy at each price
of the good. Income elasticity
is negative:
- ey
The greater the absolute value
of - ey, the more responsive buyers
are to changes in income
eyy 
-e
=
P
P1
.
Fall '97
x
x
%+DY
DY
decreases
demand
- %DQ
x
Q2
.
-%%DQ
DQ
Economics 205Principles of Microeconomics
Q1
D2
D1
Q/ut
Slide 32
Income Elasticity
[inferior goods]
Decreases in income increase the demand for inferior goods.
A decrease in income [-DY] increases demand.
A decrease in income [-DY]
results in an increase in demand,
the income elasticity of demand
is negative
For both increases and decreases in
income the income elasticity is negative
for inferior goods. The greater the
P
P1
absolute value of ey, the more responsive
buyers are to changes in income
. .
Fall '97
+%DQ
%
DQ
xx
- eey y 
% DY
-DY
Economics 205Principles of Microeconomics
D2
+%DQ
D1
x
Q1
Q2 Q/ut
Slide 33
Income Elasticity
· Income elasticity [ey] is a measure of the effect
of an income change on demand. [Can be calculated as
point or arc.]
· ey > 0,
[positive] is a normal or superior good
an increase in income increases demand, a
decrease in income decreases demand.
ey < 1 is a normal good
1 < ey is a superior good
· 0<
·
· ey < 0, [negative] is an inferior good
Fall '97
Economics 205Principles of Microeconomics
Slide 34
Examples of
· normal goods, [0 <
ey
ey < 1 ], (between 0 and 1)
· coffee, beef, Coca-Cola, food, Physicians’
services, hamburgers, . . .
· Superior goods, [
ey > 1], (greater than 1)
· movie tickets, foreign travel, wine, new cars, . . .
· Inferior goods, [ey < 0],
(negative)
· flour, lard, beans, rolled oats, . . .
Fall '97
Economics 205Principles of Microeconomics
Slide 35
Cross-Price Elasticity
· Cross-price elasticity [exy] is a measure of how
responsive the demand for a good is to changes in
the prices of related goods.
· Given a change in the price of good Y [Py ], what is
the effect on the demand for good X [Qy ]?
·
exy is defined as:
e
Fall '97
xy

% D
Q
% D P
Economics 205Principles of Microeconomics
x
y
Slide 36
Cross-price elasticity of demand , [exy]
[substitutes]
Pp
2
When beef is $2, Qb beef
Pb is purchased.
at Pb = $2 more
increase
beef will be bought
demand
to substitute for
the smaller
2
quantity of
for an increase
pork.
in Ppork,
demand for
Db Db
Dp
beef increases
When pork is $1.50, Qp pork
is purchased.
price of pork increases
The quantity demanded
of pork decreases.
1.50
’
-DQp
Qp’ Qp
.
Fall '97
[price of beef]
[price of pork]
When the price of pork increases, it will tend to increase the demand
for beef. People will substitute beef, which is relatively cheaper, for
pork, which is relatively more expensive.
pork/ut
Qb
Economics 205Principles of Microeconomics
Qb’
beef/ut
Slide 37
Cross-price elasticity
· In the case of beef and pork
· the ebp is not the same as epb
· ebp is the % change in the demand for beef with
respect to a % change in the price of pork
· epb is the % change in the demand for pork with
respect to a % change in the price of beef
· beef may not be a good substitute for pork
· pork may not be a good substitute for beef
Fall '97
Economics 205Principles of Microeconomics
Slide 38
Cross-price elasticity of demand , [exy]
[substitutes]
The cross elasticity of the demand for beef with respect to the
price of pork,
+ebp
ebp =
positive
ebeef-pork or ebp can be calculated:
+Q
DQ
%D
ofb beef
%DP+of
DPpork
p
cross elasticity is positive
+eebpbp =
positive
Qbeef
b
%D -Q Dof
%DP of pork
- DPp
An increase in the price of pork,
“causes” an increase in the demand
for beef.
A decrease in the price of pork,
“causes” a decrease in the demand
for beef.
If goods are substitutes, exy will be positive. The greater the
coefficient, the more likely they are good substitutes.
Fall '97
Economics 205Principles of Microeconomics
Slide 39
Cross-price elasticity of demand , [exy]
[compliments]
Pc
P1
Po
Pc
a decrease in the price
of crayons,
-DPc
Dp
Q2
Q1
- ebc
ebc =
negative
Fall '97
DQ
%D+ Q
ofbb
-
$3
crayons
increases the quantity demanded
of crayons
%DP of c
DPc
increase
demand
as more crayons are
purchased, the
demand for colour
books increases.
At the same
price a larger
quantity will
be bought
Dc Dc’
2000
2500
+ DQb
colour books
for compliments, the cross
elasticity is negative for price
increase or decrease.
Economics 205Principles of Microeconomics
Slide 40
Cross-Price Elasticity
· exy > 0
[positive], suggests substitutes, the
· exy < 0
[negative], suggests the goods are
higher the coefficient the better the
substitute
compliments, the greater the absolute value
the more complimentary the goods are
· exy = 0, suggests the goods are not related
· exy can be used to define markets in legal
proceedings
Fall '97
Economics 205Principles of Microeconomics
Slide 41
Elasticity of Supply
· Elasticity of supply is a measure of
how responsive sellers are to changes
in the price of the good.
· Elasticity of supply [ep] is defined:
e
s
Fall '97
% D Quantity Supplied

% D price
Economics 205Principles of Microeconomics
Slide 42
Elasticity of supply
es =
%DQsupplied
%DP
Given a supply function, at a price [P1], Q1 is produced and offered
for sale.
P
At a higher price [P2], a larger
quantity, Q2, will be produced
and offered for sale.
P2
P1
The increase in price [ DP ], induces
a larger quantity goods [ DQ]for
sale.
+DP
The more responsive sellers are to
+DQ
Q1
Fall '97
Q2
DP, the greater the absolute value of
Q /ut
es.
[The supply function is “flatter”or
more elastic]
Economics 205Principles of Microeconomics
Slide 43
The supply function is a
model of sellers behavior.
P
Si a perfectly inelastic
supply, es = 0
Sellers behavior is influenced by:
1. technology
2. prices of inputs
3. time for adjustment
market period
short run
long run
very long run
4. expectations
5. anything that influences costs of production
Se
a perfectly
elastic supply
[es is undefined.]
Q /ut
taxes
regulations, . . .
Fall '97
Economics 205Principles of Microeconomics
Slide 44
Elasticity
· Price elasticity of demand [measures a move on a demand
function caused by change in price/arc or point]
·
elastic, inelastic or unitary elasticity
· income elasticity [measures a shift of a demand function
associated with a change in income]
·
superior, normal, and inferior
· cross elasticity
·
measure the shift of a demand function for a good associated
with the change in the price of a related good
·
[compliment/substitute]
· price elasticity of supply [measures move on a supply curve]
Fall '97
Economics 205Principles of Microeconomics
Slide 45