Elasticity in Microeconomics

What is Elasticity?

• Elasticity is a measure of how responsive the quantity of a good or service is to changes in its price or other influential factors.
• It is a fundamental concept in microeconomics that helps understand how markets function.

Types of Elasticity

• Price Elasticity of Demand:
  • Measures how responsive the quantity demanded is to changes in the price of the good or service.
  • Calculated as the percentage change in quantity demanded divided by the percentage change in price.
• Price Elasticity of Supply:
  • Measures how responsive the quantity supplied is to changes in the price of the good or service.
  • Calculated as the percentage change in quantity supplied divided by the percentage change in price.
• Income Elasticity of Demand:
  • Measures how responsive the quantity demanded is to changes in consumer income.
  • Calculated as the percentage change in quantity demanded divided by the percentage change in income.
• Cross-Price Elasticity:
  • Measures how responsive the quantity demanded of one good is to changes in the price of another good.

Elasticity Coefficients

• Elastic (E > 1):
  • A small price change leads to a large change in quantity demanded or supplied.
• Inelastic (E < 1):
  • A large price change leads to a small change in quantity demanded or supplied.
• Unit Elastic (E = 1):
  • A price change leads to a proportionate change in quantity demanded or supplied.

Factors Affecting Elasticity

• Availability of Substitutes:
  • More substitutes available, higher elasticity.
• Time Period:
  • Longer time period, higher elasticity.
• Necessity:
  • More necessary, lower elasticity.
• Proportion of Income:
  • Larger proportion of income, higher elasticity.

What is Elasticity?

• Elasticity measures how responsive the quantity of a good or service is to changes in its price or other influential factors.
• It's a fundamental concept in microeconomics that helps understand how markets function.

Types of Elasticity

• Price Elasticity of Demand: measures how responsive the quantity demanded is to changes in the price of the good or service.
• Price Elasticity of Supply: measures how responsive the quantity supplied is to changes in the price of the good or service.
• Income Elasticity of Demand: measures how responsive the quantity demanded is to changes in consumer income.
• Cross-Price Elasticity: measures how responsive the quantity demanded of one good is to changes in the price of another good.

Elasticity Coefficients

• Elastic (E > 1): a small price change leads to a large change in quantity demanded or supplied.
• Inelastic (E < 1): a large price change leads to a small change in quantity demanded or supplied.
• Unit Elastic (E = 1): a price change leads to a proportionate change in quantity demanded or supplied.

Factors Affecting Elasticity

• Availability of Substitutes: more substitutes available, higher elasticity.
• Time Period: longer time period, higher elasticity.
• Necessity: more necessary, lower elasticity.
• Proportion of Income: larger proportion of income, higher elasticity.

Understand the concept of elasticity in microeconomics, including price elasticity of demand and its calculation.