Elasticity in Microeconomics

Study Notes

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.

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.

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.

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.

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.

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.

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.