Elasticity

OPEC's Dilemma

Elasticity of Demand

The Responsiveness of the Quantity Demanded to Price

Total Revenue

Total Revenue Changes


Slope Depends on Units
of Measurement

Elasticity: A
Units-Free Measure

Price elasticity of demand is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price.

Calculating the Price Elasticity of Demand

Minus Sign and Elasticity

Calculating Elasticity

Calculating Elasticity Using Average Price and Quantity

Percentages and Proportions

Inelastic and
Elastic Demand

Elasticity Along a Straight-Line Demand Curve

The Factors that Influence the Elasticity of Demand

Real World Elasticities

Unit Elasticity, Total Revenue, and Expenditure

If demand is unit elastic, an increase in price results in an equal percentage decrease in the quantity demanded and total revenue and total expenditure remain constant.

Elastic Demand, Revenue and Expenditure

If demand is elastic, an increase in price results in an larger percentage decrease in the quantity demanded and total revenue and total expenditure decrease.

Inelastic Demand, Revenue and Expenditure

If demand is inelastic, an increase in price results in an smaller percentage decrease in the quantity demanded and total revenue and total expenditure increase.

Total Revenue Test

The total revenue test is a method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change (all other things remaining the same).

More Elasticities of Demand

Income Elasticity
of Demand

The income elasticity of demand is a measure of the responsiveness of demand to a change in income, other things remaining the same.

Calculating Income Elasticity of Demand

Income Elastic Demand

If demand for a good or service is income elastic, as income increases, the percentage of income spent on that good or service will also increase.

Income Inelastic Demand

If demand for a good or service is income inelastic, as income increases, the percentage of income spent on that good or service will decrease.

Negative Income Elasticity

Real-World Income Elasticities of Demand

Cross Elasticity of Demand

The cross elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the price of a substitute or complement, other things remaining the same.

Calculating Cross
Elasticity of Demand

Elasticity of Supply

Calculating Price
Elasticity of Supply

What Determines
Supply Elasticity?

Factor Substitution Possibilities

Some goods and services must be produced by using unique or rare factors of production. These goods will have a low elasticity of supply.

Elasticity of Supply and
the Time Frame

Momentary Supply

Long Run Supply

The long-run supply curve shows the response of the quantity supplied to a change in price after all the technological possibilities have been exploited.

Short-Run Supply

The short-run supply curve shows how the quantity supplied responds to a change in price when only some of the technologically possible adjustments to production have been made.