Elasticity

Elasticity

1. Measures precentage change in one variable in response to another

2. Price Elasticity of Demand- measures responsiveness of Qd to changes in price of the same product.

   • =%change in Qd Divided by % change in price
   • Only Price Elastic if the % change in Qd is GREATER than % change in price
     • Inelastic - when % change in Qd is EQUAL to % change in Price

3. VAT- Integrated sales tax levied at each stage of production & distribution

4. Determinants of Price Elasticity; Number and Availability of substitute, Width of product definition, time dimension, income

   • Total Revenue= Price X Quantity

5. Cross Price Elasticity- Measures Sensitive of Qd of one product to change in price of another product

6. Income Elasticity- measures responsiveness of quantity demanded to change in income.

7. Elasticity of Supply- measures responsiveness of Qs to change in Price