8 Questions
What is elasticity a measure of?
The responsiveness of the quantity of a good or service to changes in its price or other influential factors
What is price elasticity of demand a measure of?
How responsive the quantity demanded is to changes in the price of the good or service
What is calculated as the percentage change in quantity demanded divided by the percentage change in price?
Price elasticity of demand
What is an elastic good?
A good with a small price change leading to a large change in quantity demanded
What is a factor that increases elasticity?
An increase in the availability of substitutes
What is income elasticity of demand a measure of?
How responsive the quantity demanded is to changes in consumer income
What is cross-price elasticity a measure of?
How responsive the quantity demanded of one good is to changes in the price of another good
What is unit elastic?
A price change leads to a proportionate change in quantity demanded or supplied
Study Notes
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.
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