Microeconomics Elasticity – How much will the quantity demanded of a product change relative to a change in price.If it's elastic, we'll buy a lot more (ice cream). If it's inelastic, we won't (salt).Calculation for Price Elasticity of Demand – P.E.D = % change in Qd / % change in P theWhat matters is whether or not it's greater than, equal to, or less than 1. If it's <1, it's inelastic, which means it's not responsive. If it's >1, it's elastic, which means demand is responsive to price. If it's 1, then it is unitary elastic. Unitary elastic means that the demand changes proportionatelywith the price. Price inelastic P elastic Qd QdtEx. cigarettes are 0.4 in elasticity (inelastic). For every 1% that the price of cigarettes goes up in the long run, the demand only goes down 0.4%. Price Elasticity of Supply – If the price we can charge goes up, what changes in our quantity supplied? How quickly can a firm respond to a change in the price of its products. Formula is the same, always positive. If they can't respond quickly, then the price elasticity of supply is inelastic. P Vertical (inelastic) P upward sloping, elastic 1 2 Qs Qs1. Examples: Art by dead artists, seats at NEU. E{p s = 0 (unrelated: infinite when it's horizontal)2. Examples: Lemonade at a lemonade stand, Elastic; you can always supply more of the product.Income Elasticity = % change in quantity demanded / % change in income How much more of things do we buy when our income changes (goes up)Most goods are good goods AKA normal goods – you buy more when you have more money. A good isnormal when income elasticity is > 0. If it's < 0 then it's an inferior good, which means you buy less if it as income increases (examples: beer, used furniture,
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