Elasticities of Supply and Demand

1 year ago
Microeconomics

Elasticity – Percentage change in one variable resulting from a 1% increase in another.

Price Elasticity of Demand – Percentage change in quantity demanded of a good resulting from a 1% increase in its price.

E/p   =    P ΔQ/  Q ∆P =% ΔQ/   % ∆ P

Infinitely elastic demand – Principle that consumers will buy as much of a good as they can get at a single price, but for any higher price the quantity demanded drops to zero, while for any lower price the quantity demanded increases without limit.

                                         

Completely inelastic demand – Principle that consumers will buy a fixed quantity of a good regardless of its price.

                                               

**The steeper the slope of the cure, the less elastic demand is.

Income elasticity of demand – Percentage change in the quantity demanded resulting from a 1% increase in income.

E1 =    I ∆Q / Q ∆ I

Cross-price elasticity of demand – Percentage change in the quantity demanded of one good resulting from a 1% increase in the price of another.

EQP=    P∆Q / Q ∆ P

 

When goods are substitutes, cross-price elasticities will be positive. When goods are complements, cross-price elasticities will be negative.

Price elasticity of supply – Percentage change in quantity supplied resulting from a 1% increase in price.

 

Point elasticity of demand – Price elasticity at a particular point on the demand curve.

 

Arc elasticity of demand – Price elasticity calculated over a range of prices.

E  = (   ∆Q ¿( P´ )

p         P     Q´

Bijay Satyal
Nov 24, 2021
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