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Questions and Answers
What does elasticity measure in economics?
What does elasticity measure in economics?
What type of elasticity measures how responsive the quantity supplied of a good is to a change in its price?
What type of elasticity measures how responsive the quantity supplied of a good is to a change in its price?
What is the formula for Price Elasticity of Demand?
What is the formula for Price Elasticity of Demand?
What does an elasticity of 0.5 indicate?
What does an elasticity of 0.5 indicate?
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Which of the following factors makes demand more elastic?
Which of the following factors makes demand more elastic?
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What type of elasticity measures how responsive the quantity demanded of one good is to a change in the price of another good?
What type of elasticity measures how responsive the quantity demanded of one good is to a change in the price of another good?
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What does an elasticity of 1 indicate?
What does an elasticity of 1 indicate?
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What type of elasticity measures how responsive the quantity demanded of a good is to a change in consumer income?
What type of elasticity measures how responsive the quantity demanded of a good is to a change in consumer income?
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Study Notes
What is Elasticity?
- Elasticity is a measure of how responsive one variable is to a change in another variable.
- In economics, elasticity is used to measure the responsiveness of demand or supply of a good to changes in its price or other influential factors.
Types of Elasticity:
- Price Elasticity of Demand: Measures how responsive the quantity demanded of a good is to a change in its price.
- Price Elasticity of Supply: Measures how responsive the quantity supplied of a good is to a change in its price.
- Income Elasticity of Demand: Measures how responsive the quantity demanded of a good is to a change in consumer income.
- Cross-Price Elasticity of Demand: Measures how responsive the quantity demanded of one good is to a change in the price of another good.
Elasticity Formula:
- Price Elasticity of Demand: Ed = (ΔQ/Q) / (ΔP/P)
- Price Elasticity of Supply: Es = (ΔQ/Q) / (ΔP/P)
Elasticity Interpretation:
- Elastic (Ed > 1): A small change in price leads to a large change in quantity demanded.
- Inelastic (Ed < 1): A large change in price leads to a small change in quantity demanded.
- Unit Elastic (Ed = 1): A change in price leads to a proportional change in quantity demanded.
- Perfectly Elastic (Ed = ∞): A small change in price leads to an infinite change in quantity demanded.
- Perfectly Inelastic (Ed = 0): A change in price leads to no change in quantity demanded.
Factors Affecting Elasticity:
- Availability of substitutes: More substitutes, more elastic.
- Degree of necessity: Less necessary, more elastic.
- Time period: Longer time period, more elastic.
- Proportion of income: Larger proportion of income, more elastic.
- Consumer preferences: Stronger preferences, less elastic.
What is Elasticity?
- Elasticity measures how responsive one variable is to a change in another variable.
- In economics, elasticity is used to measure the responsiveness of demand or supply of a good to changes in its price or other influential factors.
Types of Elasticity:
- Price Elasticity of Demand: Measures how responsive the quantity demanded of a good is to a change in its price.
- Price Elasticity of Supply: Measures how responsive the quantity supplied of a good is to a change in its price.
- Income Elasticity of Demand: Measures how responsive the quantity demanded of a good is to a change in consumer income.
- Cross-Price Elasticity of Demand: Measures how responsive the quantity demanded of one good is to a change in the price of another good.
Elasticity Formula:
- Price Elasticity of Demand: Ed = (ΔQ/Q) / (ΔP/P)
- Price Elasticity of Supply: Es = (ΔQ/Q) / (ΔP/P)
Elasticity Interpretation:
- Elastic (Ed > 1): A small change in price leads to a large change in quantity demanded.
- Inelastic (Ed < 1): A large change in price leads to a small change in quantity demanded.
- Unit Elastic (Ed = 1): A change in price leads to a proportional change in quantity demanded.
- Perfectly Elastic (Ed = ∞): A small change in price leads to an infinite change in quantity demanded.
- Perfectly Inelastic (Ed = 0): A change in price leads to no change in quantity demanded.
Factors Affecting Elasticity:
- Availability of substitutes: More substitutes make demand more elastic.
- Degree of necessity: Less necessary goods have more elastic demand.
- Time period: Longer time periods lead to more elastic demand.
- Proportion of income: Goods that consume a larger proportion of income have more elastic demand.
- Consumer preferences: Stronger preferences make demand less elastic.
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Description
Learn about elasticity, a measure of responsiveness in economics, including types of elasticity such as price elasticity of demand and supply.
