Elasticity

Elasticity

1. is a unit-free measure of responsiveness

2. Price elasticity of demand

   • responsiveness of the quantity demanded
     • only to a change in price
   • perfectly inelastic demand
     • quantity demanded remains constant
     • unit elastic demand
       • price elasticity = 1
     • inelastic demand
       • price between 0 and 1
   • perfect elastic demand
     • price elasticity of demand is infinite
     • elastic demand
       • price > 1

3. average price and quantity

   • precise results

4. cross elasticity of demand

   • of substitutes or complemenents
     • negative for complement
     • positive for substitute

5. Income elasticity of demand

   • responsiveness of demand to a change in income

6. Elasticity of Supply

   • usually positive
   • supply decisions time frames
     • momentary
       • short run
         • long run
   • Elasticity of Supply = infinity
     • infinity>Elastic>1
       • Unit elastic = 1
         • 1>Inelastic>0
           • Perfectly inelastic = 0

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