ECON 202 1st Edition Lecture 9 Outline of Last Lecture 1 Elasticity 2 Total Revenue Outline of Current Lecture 3 Elasticity Current Lecture Other Elasticities ED Change in Q Change in P 0 Inelastic Infinite Elastic Elasticity measures responsiveness of X to Y Cross Price Elasticity measures complements and substitutes We can measure the shift between D1 to D2 with Cross Price Elasticity Ex Change in Quantity of Good 1 Change in Price of Good 2 Example Coke and Pepsi These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute The increase in price of Pepsi is a 20 increase the increase in quantity of Coke is 15 Ex 15 20 75 Example Coat and Hat Increase in price of Hats is 30 decrease in quantity is 20 Ex 20 30 66 The signs do matter in these types of equations Ex 0 Complement Good Ex 0 Substitute Usefulness of Ex 1 Are the goods complements of substitutes a Beer and Marijuana Substitutes alcohol industry is opposed to the legalization b Tobacco and Marijuana Complements 2 Size can tell how much a How much of a complement or substitute i Ex 7 4 it s positive which means they re substitutes ii A 1 increase in price of Coke and a increase of quantity demand of Pepsi by 7 4 Income Elasticity EI Change in Quantity Change in Income The sign matters in these equations Example Incomes increase by 10 Quantity demand increased by 10 EI 10 10 1 Example Income increases by 10 Quantity demanded decreases by 5 EI 5 10 5 EI 0 Inferior Good EI 0 Normal Good Example In 1940 17 of the US population was in farming but today it is only 1 9 Food EI 75 positive but less than one means as incomes increase the quantity of food demanded increases by less Income to farmers share of total has gone down ED Inelastic the demand curve becomes more vertical Total Revenue P Q ED 1 Decrease in price decrease in total revenue Elasticity of Supply Es always positive 0 and infinite Es Change in Q Supplied Change in P Examples stadium seats cell phone frequencies Example Pizza Reasons for the Supply Elasticity being the way it is 1 Availability of Inputs a More availability more elastic 2 Time a More time more elastic Example Stadium seats Over time you can add additional seats