LU 2: ELASTICITY

Price Elasticity of Demand

Income Elasticity of Demand

Cross Price Elasticity of Demand

Price Elasticity of Demand

Determinants of Elasticity

Time period

Luxury or Necessity

Proportional of Income

Number of Substitutes

Addictive nature of good

Price Elasticity of demand = % 🔺 in quantity demand / % change 🔺 in price

If quantity demand change > 🔺 in price = Elastic demand

If quantity demand change < in 🔺 price = Inelastic demand

If quantity demand change equals to 🔺 in price = Unit Elasticity

Normal goods

Positive relationship

Demand rises as price rises

Inferior goods

Inverse relationship

Demand falls as price rises

Relationship between changes in the price of one good and the demand for related goods

Substitutes ➡ Positive relationship

Complements Negative ➡ relationship

Measure of the responsiveness of quantity supplied to the change in prices.

If change in QS > 🔺 in Price = Elastic Supply

If change in Quantity Supply < 🔺 in Price = Inelastic Supply