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Elasticity (Definitions (Demand elasticity (How readily quantity demanded…
Elasticity
Definitions
Demand elasticity
How readily quantity demanded responds to a change in price
elastic means really readily
inelastic means not so readily
can calculate elasticity for demand, supply, and many other out comes
can also have unitary elasticity
price moves at the exact same rate as demand (absolute value of slope = 1)
elasticity of demand is calculated using percent change
types of products
elastic products
luxury
has a lot of subsitutes
large proportion of one's income
inelastic products
necessity
no substitutes
small portion of one's income
calculations
calculate elasticity
(delta Q/ intial Q)100%/(delta P/ initial P)100%
elasticity >1 -- elastic
elasticity<1 -- inelastic
elasticity = 1 -- unitary elastic
can also determine elasticity by multiplying quantity * price to get total revenue
if TR moves in same direction price, inelastic
if TR and price move in opposite directions, elastic
if TR doesn't change as price changes, unitary elastic
perfect elasticity and inelasticity
perfect elasticity -- means quantity demanded changes without price moving
looks like a vertical line
perfect inelasticity -- quantity demanded never changes as price changes
looks like a vertical line