Please enable JavaScript.
Coggle requires JavaScript to display documents.
ELASTICITY - Coggle Diagram
ELASTICITY
Price elasticity of demand
measurement of customers sensitivity to change in price
elastic demand
1
inelastic demand
<1
unit elasticity
= 1
determinants of price elasticity of demand
Substitutability
Proportion of income
Luxuries vs necessities
Time
applications of price elasticity of demand
large crop yields
increased supply tend to decrease prices and total revenue. INELASTIC
Excise taxes
government pays attention to elasticity of demand when it selects goods and services to tax
tend to tax inelastic demand products and services.
liquor, gasoline and cigarettes
total revenue test
The total amount the seller receives from the sale of a product in a particular time period
TR = P x Q
Elastic demand
decrease of price = increase in total revenue
Inelastic demand
price decrease = reduced total revenue
Unit elasticity
increase or decrease in price leaves total revenue unchanged
Price Elasticity of supply
the degree of price elasticity of supply depends on how quickly and easily producers can shift resources between alternative use
immediate market period
the length of time over which producers are unable to respond to a change in quantity supplied
The short run
time too short to change plant capacity but long enough to use the fixed -sized plant more intensively or less intensively
the long run
time period long enough for firms to adjust their plant sizes and for new firms to enter the industry
applications of price elasticity of supply
antiques and reproductions
high price a result of strong demand and limited, highly inelastic supply
Volatile gold prices
Fluctuations shifts in demand interacting with highly inelastic supply
Cross elasticity and income elasticity of demand
cross elasticity of demand
measures the sensitivity of consumer purchases of one product to a change in the price of some other product.
Substitute goods - if cross elasticity + , Complementary goods - if cross elasticity -, Independent goods - if cross elasticity 0 or near 0
income elasticity of demand
measures the degree to which consumers respond to a change in their income
normal goods - income elasticity +, Inferior goods - income elasticity
