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Elasticity

Economics presentation on Elasticity of Demand, Elasticity of Supply, Cross Price Elasticity and Income Elasticity.
by

Eric Shetter

on 4 October 2016

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Transcript of Elasticity

Elasticity - What is it?
Law of Demand
If P ↑ then Q.D. ↓

But by how much?

This is the key Question of Chapter 18
Elasticity measures the amount of change
in Q.D. as a result of the price change

and it...

allows us to analyze Demand with more precision
A big change in Q.D. means
that the good is Elastic
A little change in Q.D. means
that the good is Inelastic
What do big and little mean?

Big or Little change in Q.D.
when compared to the size
of the P change.
Honda Accord
Beef
European
Vacation
Salt
Dijon
Mustard
Steak
Elasticity measures how
sensitive people are to
changes in prices
not responsive
or sensitive
very sensitive
or responsive
Rank the following
products from most
elastic to least elastic
Typical Ranking
1-Euro Vaca
2-Accord
3-Dijon
4-steak
5-beef
6-salt
?????????????
This is what Elasticity
measures
Elastic good
Inelastic good
vs.
Four Determinants of
Elasticity of Demand
1. Necessity vs. Luxury
Inelastic
Elastic
2. Availability of Substitutes
3. Time
4. Portion of your
Income

Small portion means more inelastic
Large protion means more elastic
Lots of substitutes gives the ability to change consumption - elastic
No good substitutes leaves no option to change consumption - inelastic
Little time leads
to little change -
inelastic
Longer time periods
means more time to
change - elastic
vs.
Gas is???
Inelastic in the short run
but more elastic long term
Is there a better way
to figure out Elasticities?
Calculating Elasticity

(this is the best way to determine elasticities if
you have the data to do it)

If Elasticity of Demand is less than one, then the good is i
Full transcript