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Elasticity of Demand and Supply (Price Elasticity of Supply (Determinants,…

- - - - A measure of the responsiveness of how much the quantity demanded of a product changes when there is a change in it's price.
    - - PED = elastic when the value is between one and infinite
    - - The number and closeness of substitutes
      - the necessity of the product
      - Time period being considered
    - - PED = Inelastic when the value is between zero and one
  - - - A measurement of the responsiveness of how much the demand for a product changes when there is a change in price of a mother product.
    - - Depending on whether the products are complementary, substitutes or unrelated
    - - The larger the value of XED, the closer the relationship between the goods.
    - - The larger the value of XED, the closer the relationship between the goods.
  - - - A measurement of the responsiveness of the how much the demand for a product changes when there is a change in the income of the consumer.
    - - YED = positive, i.e. as income increases, demand increases
      - YED = income inelastic when the value is between zero and one
      - YED = income elastic when the value is grater than one
    - - Depending on what type of good it is, i.e. whether it is a necessity, superior or inferior good
    - - Example: bread
    - - Example: foreign holidays
      - Small change in income leads to big change in demand
    - - Negative Income Elastic
        
        Demand decrease and income increases
        
        Example: non-brand name jeans, cheap wine
        
        Giffen Goods are inferior goods
    - - In a recession, luxury products may be more income elastic than in a boom period
- - - - The longer the time period, the more elastic the supply of the product will be
      - Immediate time period, PES is perfectly inelastic
      - Short- run, as firms have time to change variable factors, the product is elastic
      - Long-run, firms have time to change all four factors, the product is very elastic
- - - - Elasticity of labour is the measure of the responsiveness of demand for labour when there is change in the ruling of the market wage rate
    - - Labour costs as a % of total costs
        
        When labour expenses are a high proportion of total costs, then labour demand is more elastic
      - The ease and cost of factor substitution
        
        Labour demand will be more elastic when a firm can substitute quickly and easily between labour and capital inputs.
        
        When specialised labour or capital is needed, then the demand for labour will be more inelastic with respect to the wage rate.
      - The price elasticity of demand for the final output produced by a business
        
        If a firm is operating in a highly competitive market where final demand for the product is price elastic, they may have little market power to pass on higher wage costs to consumers through a higher price. The demand for labour may therefore be more elastic as a consequence.
  - - - The elasticity of the supply of labor refers to the degree to which the quantity supplied of labor will go up or down as wages increase or decrease.
    - - If the supply is inelastic, the quantity supplied will not change much as wages change.
      - For more skilled jobs, the supply of labor cannot change very quickly.
      - If supply is more inelastic, this tends to lead to higher wages
    - - the quantity supplied of labor will change a great deal as wages change.
      - The supply of labor is generally said to be more elastic in lower-skilled jobs that require less training