Summary
Summary of Elasticity
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- Institution
Summary comparing Price Elasticity of Demand, Price Elasticity of Supply, Cross Price & Income Elasticity
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↳emerprice elasticity of bemand
·
How responsive is quantity demanded to a change In price?
eg:Idential changes In supply along two differentdemand curves
price (rand) SI price (rand) SI
t
small
large t PVICC
S2 > 52
I & >
DrI CC I SNOWS
large +
-
SHOWS P3
v Small I in Q
P2
supplied
supplied
⑳
> 7
④
I &2 &
Beer ④
I Q QBeer
income elasticity of Demand a cross-price elasticity of Demand
income elasticity or Demand cross-price elasticity of Demand
·
measures the responsiveness of the ·
measures the responsiveness of the
quantity demanded to changes In quantity demanded of a particular good
income. to changes In price of a related good.
%. AQdA QdA
#
·1.DY %. DQPB
- W
% change In quantity or A demanded %. change In quantity of A demanded
%. change In income % change In price of B
·
normal goods have a positive y elasticity. Substitutes:positive cross elasticity
normal ·travelling, designer clothes (
luxury <10 price of substitute products
+,
normal necessity (frult & veg, branded demanded
a of this productWill t (
house supplies such as & Pepsi
eg:coke
Sunlight11941d(
·
compliments:negative cross elasticity
·
inferior goods have a negative y elasticity
C complimentary productI,
price of
products such as PICK n Pay's
·
no name ademanded oft his productWill + (
brand or Tomato soup or rice (instead of
TaStIC rICC) eg:burger and chips
·
10 goods are unrelated, cross price
el9StICIY IS Close tO O
Price eldStICItY or Supply
·
PES IS a unitfree measure of responsiveness of quantity supplied to price
CHANGES
1. QS . change In quantity supplied
·
7
CPES teCRICallY Always
IS %. change In price
. DP
·
POSItIVe(
unitelasticity holds for any
Supply Curves With PES
Constant I near supply curve
T
perfectly IelaStIC perfectly elastic elaStIC
Unit
eg:supply of land, eg:Cheeseburgers
PICASSO PAILINGS at MCDONAIdS
price price 53 C19StICIY 1
price
=
51 IGStICIEY
=0
S2 C19SIICIEY &
=
quantity qUGntILY qUGntItY
elasticity is between o
Is 10 e19StICItY is between
and I supply relatively Inelastic and & - supply Is relatively elastic
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